What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-07 · 260 added, 149 removed, 459 unchanged (47% of the section changed)

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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 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 and convert the 2% general partner interest into a non-economic general partner interest, 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.

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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;

Management's Discussion and Analysis

• our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements;

• our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all;

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• 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;

• 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 or future pandemics;

• 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;

• competitive conditions in our industry including capacity overbuild in areas where we operate;

• actions taken by our customers and competitors;

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• 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;

• disruptions due to acts of God, natural disasters, casualty losses, severe weather patterns, such as freezing conditions, cyber or other attacks on our electronic systems, and other matters beyond our control which 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;

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Management's Discussion and Analysis

• the effects of future litigation;

• the effects of future litigation or environmental liabilities that are not covered by insurance;

• other factors discussed elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.

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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.

economic activity continued on a recovery trend during the quarter ended June 30, 2021, albeit remaining subject to heightened levels of uncertainty related the on-going impact of the COVID-19 Pandemic, and the spread of new variants of the virus.

Most of the COVID-19 Pandemic related restrictions imposed in the prior year have been eased, major airlines have resumed their flights, motor vehicle use continues to increase and government vaccination campaigns continue.

The economic recovery has in turn resulted in increased demand and market prices for crude oil and other products, particularly refined petroleum products that we receive revenue for transporting and storing.

It has also resulted in an increase in demand and sales volumes in our wholesale marketing business.

Crude oil production as the consumption of the hydrocarbon products continued to increase.

Although we expect the direct effects from the Pandemic on U.S.

oil consumption to continue to decrease, some consumption patterns may be more lasting, including increased working from home and changes in travel behavior, which could limit growth in gasoline and jet fuel consumption.

Furthermore, as of June 30, 2021, the COVID-19 Pandemic, specifically the spread of the Delta variant of the virus, continues 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.

Therefore, 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.

During the three and six months ended June 30, 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.

For the six months ended June 30, 2021, the impact of this positive trend was netted by the reduced volumes during the severe freezing conditions experienced in February 2021.

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.

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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.

generally accepted accounting principles, we have considered them in the preparation of our condensed consolidated financial statements as of and for the three and six months ended June 30, 2021, which are included in Item 1.

of this Quarterly Report on Form 10-Q.

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.

Management's Discussion and Analysis

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.

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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;

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• 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;

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 COVID-19 Pandemic;

additional actions by businesses and governments in response to the COVID-19 Pandemic;

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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.

Inflation Adjustments

On July 1, 2021, the tariffs on certain of our FERC regulated pipelines and the throughput fees and storage fees under certain of our agreements with Delek Holdings and third parties that are subject to adjustments using FERC indexing decreased by approximately 0.6%, which was the amount of the change in the FERC oil pipeline index.

Under certain of our agreements with Delek Holdings and third parties, the fees that are subject to adjustments using the consumer price index increased 4.4% and the fees that are subject to adjustments using the producer price index increased approximately 2.3%.

High Yield Debt - 7.125% Senior Notes due 2028

On May 24, 2021, the Partnership and its wholly owned subsidiary Delek Logistics Finance Corp.

("Finance Corp." and together with the Partnership, the "Issuers") sold $400.0 million in aggregate principal amount of the Issuers’ 7.125% Senior Notes due 2028 (the “2028 Notes”), along with the related guarantees of the 2028 Notes.

We used the net proceeds from the sale of the 2028 Notes to repay a portion of the outstanding borrowings under our revolving credit facility.

See Note 7 to our accompanying condensed consolidated financial statements for additional information.

Exclusive Supply Agreement

In May 2021, we executed an exclusive supply and strategic relationship agreement with Baker Petrolite LLC (an affiliate of Baker Hughes Company) ("Baker").

The agreement provides that, under certain circumstances, Baker will supply certain chemicals exclusively to us within a defined territory.

Those chemicals allow us, through blending competencies utilizing proprietary intellectual property, to clarify

Management's Discussion and Analysis

slurry which can then be used in International Maritime Organization-compliant products.

The agreement has a 5-year initial term and a 5-year extension option.

How We Generate Revenue

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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 manages long-term capital projects on behalf of Delek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of gathering systems in the Permian Basin (the "Delek Permian Gathering Project").

The majority of the gathering systems has been constructed, however, additional costs pertaining to a pipeline connection that was not acquired by 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.

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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;

(v) EBITDA and distributable cash flow (as such terms are defined below).

■ volumes (including pipeline throughput and terminal volumes)

■ contribution margin per barrel

■ operating and maintenance expenses

■ cost of materials and other

■ EBITDA and distributable cash flow (as such terms are defined below).

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.

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• our ability to increase throughput volumes at our refined products terminals and provide additional ancillary services at those terminals;

Management's Discussion and Analysis

• our ability to identify and serve new customers in our marketing and trucking operations;

• our ability to make connections to third-party facilities and pipelines.

Management's Discussion and Analysis

Contribution Margin per Barrel

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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

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(iv) gains and losses related to our commodity hedging activities.

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).

The Partnership has declared its intent to make a cash distribution to its unitholders at a distribution rate of $0.94 per unit for the quarter ended June 30, 2021 ($3.76 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.

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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.

During the three and six months ended June 30, 2021, the U.S.

economic activity continued its recovery path resulting in increases in consumption and demand for crude oil and refined products, although heightened uncertainty still remains due to the on-going COVID-19 Pandemic and the spread of new variants of the virus.

Compared to the three and six months ended June 30, 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 three and six months ended June 30, 2021 have been increasing.

The price of oil (WTI Cushing) closed at $73.47 per barrel on June 30, 2021, $34.20 per barrel higher than in June of last year.

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 $61.45 beginning April 2021 and reached a high of $74.24 per barrel on June 25, 2021.

Due to the sustained increase in oil prices, during the three and six months ended June 30, 2021, we experienced improved margins in the West Texas area, and better throughput for our assets with improved gross margins, when compared to the same period in 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.

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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.

For example, demand for refined products from our West Texas operations to industries that support crude oil exploration and production was subdued during the three and six months ended June 30, 2020 due to the impact of the COVID-19 Pandemic leading to lower demand and sales of refined products and remained largely depressed during most of 2020.

As discussed above, the U.S.

economic activity is recovering and demand for and prices of crude oil and related refined products increased during the three and six months ended June 30, 2021 as consumption of oil increased spurred by easing of COVID-19 related restrictions.

Although we expect the direct effects from the pandemic on U.S.

oil consumption to decrease, some consumption patterns may be more lasting, including increased working from home and changes in travel behavior, which could limit growth in gasoline and jet fuel consumption.

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 two quarterly periods in 2021.

Management's Discussion and Analysis

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 two quarterly periods in 2021.

Our West Texas operations can benefit from RINs that are generated by ethanol blending activities.

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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.

We sold approximately $3.1 million and $5.4 million of RINs to Delek Holdings during the three and six months ended June 30, 2021, respectively.

Additionally, we sold approximately $0.6 million and $1.5 million of RINs to Delek Holdings during the three and six months ended June 30, 2020, respectively.

See below for the high, low and average prices of RINs for each of the quarterly periods in 2020 and in the two quarterly periods in 2021.

Management's Discussion and Analysis

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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.

There have been no material changes to our contractual obligations and commercial commitments during the three and six months ended June 30, 2021 from those disclosed in our Annual Report on Form 10-K.

Critical Accounting Policies

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(i) evaluating impairment for property, plant and equipment and intangibles, and (ii) evaluating potential impairment of goodwill.

During the three months ended June 30, 2021, we updated our critical accounting policies to include accounting policies that have become critical as a result of new events.

Accordingly we are adding a critical accounting policy related to equity method investments impairment assessment as follows:

Equity Method Investments and Impairment

Equity investments for which we determine we have significant influence are accounted for as equity method investments.

Amounts recognized for equity method investments are included in our consolidated balance sheets and adjusted for our share of the net earnings and losses of the investee, dividends received and cash distributions from the investee, which are separately stated in our consolidated statements of income and comprehensive income and our consolidated statements of cash flows.

The equity method investments are assessed for possible impairment when events indicate that the fair value of the investment may be below the carrying value.

In such circumstances, we are required to determine the fair value of the investment and compare it to the carrying value.

When the fair value is less than carrying value and when such condition is deemed to be other than temporary, the carrying value of the investment is considered to be impaired and is adjusted to its fair value, and the amount of the impairment is included in net income.

In making the determination as to whether a decline is other than temporary, the Partnership considers such factors as the duration and extent of the decline, the investee’s financial performance, and our ability and intention to retain the investment for a period that will be sufficient to allow for any anticipated recovery in the investment’s market value.

The new cost basis of the investment is not changed for subsequent recoveries in fair value.

As of June 30, 2021, we identified the non-renewal of a significant revenue contract which expires on August 31, 2021 by a customer and major shareholder of Andeavor Logistics RIO Pipeline LLC ("Andeavor Logistics") and lower competitor tariff rates compared to FERC approved tariff rates as triggering events requiring that we perform an impairment assessment on our equity method investment.

The fair value of our equity method investment was estimated using the income approach and the market approach.

The income approach utilizes a discounted cash flow model incorporating management’s expectations of the investee’s future revenue (including the throughput barrel per day sold and related reduced tariff rates), operating expenses and earnings before interest, taxes, depreciation and amortization, capital expenditures and an anticipated tax rate (“EBITDA”) and the estimated long term growth rate.

The related cash flow forecasts are discounted using an estimated weighted average cost of capital (“WACC”) at the date of valuation.

For the market approach, we utilized the estimated 2022 EBITDA multiples for guideline comparable companies applied to Andeavor Logistics' estimated 2022 EBITDA to estimate the fair value.

We performed certain analyses on the most significant inputs in our valuation model to evaluate the impact of the judgments made on the fair value of the investee.

This included sensitivity analysis and stress testing on certain of our inputs to our valuation model, including the estimated revenue (including the throughput barrel per day and tariff rates), EBITDA margin and WACC.

Based on our analyses, we determined that there is no other than temporary impairment on our equity method investment as of June 30, 2021.

Management's Discussion and Analysis

We performed a sensitivity analysis on our impairment test as of June 30, 2021, noting the following:

Equity Method Investment Balance at June 30, 2021 Stress Testing Range of Estimated Fair Values % Estimated Fair Value exceeds Carrying Value (1)

Increase in WACC that could cause impairment (2)

Decrease in long-term growth rate that could cause impairment (2)

Andeavor Logistics $ 47,693 $44,292 - $62,667 < 5% 0.2% 0.5%

(1) Carrying Value compared to our selected Fair Value Point Estimate

(2) Assumes no other changes in any of the key assumptions related to the selected Point Estimate.

Qualitative matters that may impact our estimates of the fair value of our equity method investment include assumptions regarding the timing of another throughput contract and ramp up of throughput volumes, timing of competitor tariff rates recovery compared to FERC tariff rates, the pipeline location and resultant impact on possible customers capacity utilization, the Delaware Permian Basin takeaway and production levels, regulatory impacts, competitors entering the location by building competing pipelines, and other operational issues which might affect Andeavor Logistics’ ability to scale up throughput capacity.

The Partnership bases its assumptions on projected financial information that the Partnership believes is reasonable, but those assumptions require judgment and are forward looking in nature.

However, actual results may differ materially from those projections.

If actual results were subsequently materially lower than expected, if significant adverse changes were to occur in its operating environment, if a significant increase in the discount rate were to be needed, and/or if changes in other assumptions were to happen, the Partnership’s estimate of the fair value of its equity investment could change materially.

Non-GAAP Measures

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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.

The following table and discussion present a summary of our consolidated results of operations for the three and six months ended June 30, 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,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net revenues:

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Income from equity method investments (6,642) (6,462) (10,691) (12,015)

Other expense, net 31 —

Other income, net (34) (2) (3) (2)

Total non-operating costs and expenses 4,982 4,206 10,701 10,477

Income before income tax expense 43,412 43,675 79,863 72,446

Income tax expense 184 975

Income tax expense (benefit) 166 (740) 350 235

Net income attributable to partners $ 43,246 $ 44,415 $ 79,513 $ 72,211

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General partner's interest in net income, including incentive distribution rights (2)

— 9,647 — 18,724

Limited partners' interest in net income $ 43,246 $ 34,768 $ 79,513 $ 53,487

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(1) For a definition of EBITDA, please see "Non-GAAP Measures" above.

(2) Prior to August 13, 2020, general partner distributions (including IDRs) consisted of the 2.0% general partner interest and IDRs, which represented the right of the general partner to receive increasing percentages of quarterly distributions of available cash from operating surplus in excess of 0.43125 per unit per quarter.

In connection with the IDR Restructuring Transaction on August 13, 2020, the IDRs were eliminated and the general partner interest became a non-economic general partner interest.

Management's Discussion and Analysis

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Reconciliation of net income to EBITDA (in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net income $ 43,246 $ 44,415 $ 79,513 $ 72,211

Income tax expense 184 975

Income tax expense (benefit) 166 (740) 350 235

Depreciation and amortization 9,967 8,694 20,706 14,993

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$ 66,840 $ 64,842 $ 125,570 $ 113,538

(1) For a definition of EBITDA, please see "Non-GAAP Measures" above.

Reconciliation of net cash from operating activities to distributable cash flow (in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net cash provided by operating activities $ 85,792 $ 37,545 $ 147,524 $ 72,381

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Maintenance and regulatory capital expenditures (2)

(1,133) (98) (2,862) (726)

Reimbursement from Delek Holdings for capital expenditures (3)

4 16 1,577 55

Accretion of asset retirement obligations (115) (107) (230) (214)

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$ 53,829 $ 56,971 $ 106,351 $ 92,708

(1) For a definition of EBITDA and distributable cash flow, please see "Non-GAAP Measures" above.

(1) For a definition of 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).

(3) For the three and six month periods ended June 30, 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).

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

Consolidated Results of Operations — Comparison of the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 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):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net Revenues:

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Operating income $ 48,394 $ 47,881 $ 90,564 $ 82,923

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.

Net revenues increased by $50.8 million, or 43.2%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increased revenues associated with agreements executed in connection with the Big Spring Gathering System and Trucking Assets 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

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

• increases in the average sales prices per gallon of gasoline and diesel sold and increases in the volumes of diesel and gasoline sold in our West Texas marketing operations.

◦ the average sales prices per gallon of gasoline and diesel sold increased $1.14 per gallon and $1.08 per gallon, respectively;

◦ the volume of diesel and gasoline sold increased by 0.7 million gallons, and 0.3 million gallons, respectively.

Net revenues increased by $40.4 million, or 14.4%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• increased revenues associated with agreements executed in connection with the Big Spring Gathering System and the Trucking Assets 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.

• increases in the average sales prices per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations:

◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.57 per gallon and $0.55 per gallon, respectively;

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 volume of gasoline and diesel sold decreased by 13.6 million gallons and 8.5 million gallons, respectively.

Such increases were partially offset by the following:

• 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 six months ended June 30, 2021 when compared to the six months ended June 30, 2020.

• decreases in throughputs at the Paline pipeline due to scheduled pipeline maintenance.

Cost of Materials and Other

Cost of materials and other increased by $44.8 million, or 102.1%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in the average cost per gallon of gasoline and diesel sold, and increases in the volume of diesel and gasoline sold in our West Texas marketing operations:

◦ the average cost per gallon of gasoline and diesel sold increased $1.21 per gallon and $1.04 per gallon, respectively.

◦ the volume of diesel and gasoline sold increased by 0.7 million gallons and 0.3 million gallons, respectively.

Cost of materials and other increased by $24.7 million, or 17.0%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• increases in the average cost per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations:

◦ the average cost per gallon of gasoline and diesel sold increased by $0.62 per gallon and $0.52 per gallon, respectively.

◦ the average volumes of gasoline and diesel sold decreased by 13.6 million gallons and 8.5 million gallons, respectively.

Operating Expenses

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;

• 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.

Operating expenses increased by $3.0 million, or 24.4%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in employee and outside service costs after cost cutting measures previously implemented to respond to the COVID-19 Pandemic, including delaying non-essential projects, ended;

• increases in utilities, maintenance and other variable expenses due to higher throughput.

Operating expenses increased by $2.3 million, or 8.6%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• increases in employee and outside service costs after cost cutting measures implemented to respond to the COVID-19 Pandemic, including delaying non-essential projects, ended;

• increases in variable expenses such as maintenance and materials costs due to higher throughput;

• increases 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

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;

• decrease in employee and outside services costs due to measures implemented to respond to the COVID-19 Pandemic.

General and administrative expenses increased by $1.4 million, or 28.7%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increase in legal and professional consulting fees due to transactions during the quarter.

Management's Discussion and Analysis

General and administrative expenses increased by $0.1 million, or 0.8%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Depreciation and Amortization

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:

Depreciation and amortization increased by $1.3 million, or 14.6%, in the second quarter of 2021 compared to the second quarter of 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.

Depreciation and amortization increased by $5.7 million, or 38.1%, in the six months ended June 30, 2021 compared to the six months ended June 30, 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

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%.

During the three months ended June 30, 2021 we incurred $11.7 million of interest expense, compared to $10.7 million during the three months ended June 30, 2020, an increase of $1.0 million, or 9.3%.

This increase was primarily driven by the following:

• increased borrowings under the DKL Credit Facility as a result of the Trucking Assets Acquisition and the IDR Restructuring Transaction;

• higher fixed rate interest on the new 2028 Notes issued during second quarter of 2021 compared to our floating interest rates under the DKL Credit Facility;

• partially offset by a decrease in floating interest rates applicable to the DKL Credit Facility.

During the six months ended June 30, 2021 we incurred $21.4 million of interest expense, compared to $22.5 million during the six months ended June 30, 2020, a decrease of $1.1 million, or 4.9%.

This decrease was primarily driven by the following:

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• 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;

• higher fixed rate interest on the new 2028 Notes issued during second quarter of 2021 compared to our floating interest rates under the DKL Credit Facility.

Results from Equity Method Investments

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%.

We recognized income of $6.6 million from equity method investments during the second quarter of 2021 compared to $6.5 million for the second quarter of 2020, an increase of $0.1 million, or 1.5%.

During the six months ended June 30, 2021 we recognized income of $10.7 million from equity method investments, compared to $12.0 million for the six months ended June 30, 2020, a decrease of $1.3 million, or 11.0%.

This decrease was primarily driven by the following:

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.

Management's Discussion and Analysis

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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:

The following tables and discussion present the results of operations and certain operating statistics of the pipelines and transportation segment for the three and six months ended June 30, 2021 and 2020:

Pipelines and Transportation

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net Revenues:

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Throughputs (average bpd)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

El Dorado Assets:

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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 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:

Comparison of the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020

Net revenues for the pipelines and transportation segment increased by $7.0 million, or 11.1%, in the second quarter of 2021 compared to the second quarter of 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.

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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;

• 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.

Net revenues for the pipelines and transportation segment increased by $24.0 million, or 21.6%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

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 six months ended June 30, 2021 when compared to the six months ended June 30, 2020;

• 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 six months ended June 30, 2021 when compared to the six months ended June 30, 2020.

Cost of Materials and Other

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;

Cost of materials and other for the pipelines and transportation segment increased $3.2 million, or 28.3%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in transportation costs related to our trucking assets, including driver wages and benefits and fuel expenses proportionate to increase in fees, insurance, supplies and maintenance expenses.

Cost of materials and other for the pipelines and transportation segment increased by $10.1 million, or 58.7%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• increases in transportation costs related to our Trucking Assets due to the Trucking Assets Acquisition, which was effective May 1, 2020;

• increases in driver wages and benefits and fuel expense proportionate to increases in fees, insurance, supplies and maintenance expenses.

Operating Expenses

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;

Operating expenses for the pipelines and transportation segment increased by $1.1 million, or 11.6%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increase in employee and outside service costs compared to same period prior year when cost cutting measures were implemented to respond to the COVID-19 Pandemic including delaying non-essential projects;

• increase in utilities and other variable expenses due to higher throughputs.

Operating expenses for the pipelines and transportation segment decreased by $0.2 million, or 0.7%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

Management's Discussion and Analysis

• decreases in employee and outside service costs during the first quarter of 2021 when cost cutting measures implemented to respond to the COVID-19 Pandemic, including delaying non-essential projects, were still in place;

• partially offset by an 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

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:

Contribution margin for the pipelines and transportation segment increased by $2.7 million, or 6.4%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition;

• partially offset by increases in operating expenses.

Contribution margin for the pipelines and transportation segment increased by $14.0 million, or 19.2%, in the six months ended June 30, 2021 compared to the six months ended June 30, 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;

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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 :

The tables and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three and six months ended June 30, 2021 and 2020 :

Wholesale Marketing and Terminalling

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net Revenues:

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Operating Information

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

East Texas - Tyler Refinery sales volumes (average bpd) (1)

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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 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.

Comparison of the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020

Net revenues for the wholesale marketing and terminalling segment increased by $43.8 million, or 80.9%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in the average sales prices per gallon of gasoline and diesel sold and increases in the volumes of diesel and gasoline sold in our West Texas marketing operations.

◦ the average sales prices per gallon of gasoline and diesel sold increased $1.14 per gallon and $1.08 per gallon, respectively;

◦ the volume of diesel and gasoline sold increased by 0.7 million gallons and 0.3 million gallons, respectively.

Net revenues for the wholesale marketing and terminalling segment increased by $16.3 million, or 9.6%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.57 per gallon and $0.55 per gallon, respectively.

◦ the volume of gasoline and diesel sold decreased by 13.6 million gallons and 8.5 million gallons, respectively.

Management's Discussion and Analysis

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Cost of Materials and Other

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.

Cost of materials and other for our wholesale marketing and terminalling segment increased by $41.6 million, or 127.3%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in the average cost per gallon of gasoline and diesel sold and increases in the volumes of diesel and gasoline sold in our West Texas marketing operations.

◦ the average cost per gallon of gasoline and diesel sold increased $1.21 per gallon and $1.04 per gallon, respectively;

◦ the volume of diesel and gasoline sold increased by 0.7 million gallons and 0.3 million gallons, respectively.

Cost of materials and other for our wholesale marketing and terminalling segment increased by $14.5 million, or 11.4%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily driven by the following:

• increases in the average cost per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations:

◦ the average cost per gallon of gasoline and diesel sold increased by $0.62 per gallon and $0.52 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.

Management's Discussion and Analysis

◦ the average volumes of gasoline and diesel sold decreased by 13.6 million gallons and 8.5 million gallons, 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 and six months ended June 30, 2021 and 2020.

Refer to the Refined Products Volume chart above for a summary of volumes impacting our West Texas operations.

Operating Expenses

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:

Operating expenses increased by $1.9 million, or 70.1%, in the in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increases in variable expenses such as utilities, maintenance and material costs;

• this increase was partially offset by lower operating costs associated with allocated contract services pertaining to certain of our assets.

Operating expenses increased by $2.5 million, or 41.6%, in the six months ended June 30, 2021 compared to the six months ended June 30, 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;

• this increase partially offset by lower operating costs associated with allocated contract services pertaining to certain of our assets.

• this increase was partially offset by lower operating costs associated with allocated contract services pertaining to certain of our assets.

Contribution Margin

• 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.

Contribution margin for the wholesale marketing and terminalling segment increased by $0.3 million, or 1.5%, in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by the following:

• increase in revenue due to increases in average price per gallon of diesel and gasoline as described above.

Such increases were offset by:

• increase in cost of materials and other due to increases in average cost per gallon of diesel and gasoline sold as described above.

The decrease of $0.7 million, or 2.0%, in contribution margin for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due to increases in cost of materials and other and operating expenses offset by increases in revenue as described above.

Management's Discussion and Analysis

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(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.

At June 30, 2021 our total liquidity amounted to $563.4 million, comprised of $561.2 million in unused credit commitments under the DKL Credit Facility and $2.2 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.

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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.

We believe we were in compliance with the covenants in all our debt facilities as of June 30, 2021.

After considering the potential effect of the 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.

On July 26, 2021, our board of directors declared a distribution of $0.940 per common unit (the "Distribution"), which equates to approximately $40.8 million per quarter, based on the number of common units expected to be outstanding as of August 5, 2021.

The Distribution is expected to be paid on August 11, 2021 to common unitholders of record on August 5, 2021 and represents a 4.4% increase over the second quarter 2020 distribution.

We have set a distribution growth guidance of 5% for the full year 2021.

This increase in the distribution is consistent with our intent to maintain an attractive distribution growth profile over the long term.

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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

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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)

March 31, 2021 $ 0.920 $ 3.68 $ 39,968 May 14, 2021 May 10, 2021

June 30, 2021 $ 0.940 $ 3.76 $ 40,846 August 11, 2021 (1)

August 5, 2021

(1) Expected date of distribution.

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,

The following table sets forth a summary of our consolidated cash flows for the six months ended June 30, 2021 and 2020 (in thousands):

Six Months Ended June 30,

Net cash provided by operating activities $ 147,524 $ 72,381

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Net cash (used in) provided by financing activities (144,383) 52,512

Net increase in cash and cash equivalents $ 9,134 $ (1,369)

Net (decrease) increase in cash and cash equivalents $ (2,070) $ 10,651

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.

Net cash provided by operating activities was $147.5 million for the six months ended June 30, 2021, compared to $72.4 million for the six months ended June 30, 2020, resulting in a $75.1 million increase in net cash provided by operating activities.

The cash receipts from customer activities increased by $40.7 million and cash payments to suppliers and for allocations from Delek Holdings for salaries decreased by $34.4 million.

In addition, cash dividends received from equity method investments decreased by $4.2 million and cash paid for debt interest decreased by $4.2 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.

Net cash used in investing activities decreased by $109.0 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The decrease in cash used in investing activities was primarily due to lower contributions to equity method investments and no acquisitions during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

We disbursed $1.4 million in additional contributions to our equity method investments during the six months ended June 30, 2021 compared to $10.5 million during the six months ended June 30, 2020.

The Big Spring Gathering Assets Acquisition, effective on March 31, 2020, was partially financed with cash from a drawdown of the DKL Credit Facility amounting to $100.0 million which was recorded in investing activities and the Trucking Assets Acquisition was financed with cash from drawdowns of the DKL Credit Facility amounting to $48 million of which $0.5 million was recorded as investing activity with $47.6 million recorded in financing activities as a distribution to Delek Holdings and the other owners of our general partner prior to the IDR Restructuring Transaction pursuant to the asset acquisitions under common control guidance.

Transaction costs paid amounting to $1.0 million were capitalized for the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition.

There was no asset acquisition during the six months ended June 30, 2021.

In addition there were additions to property, plant and equipment amounting to $8.8 million, additions to intangible assets amounting to $0.7 million and distributions from equity method investments amounting $5.4 million during the six months ended June 30, 2021 compared to additions to property, plant and equipment amounting to $5.0 million and distributions from equity method investments amounting to $1.7 million during the six months ended June 30, 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.

Net cash used in financing activities amounted to $144.4 million during the six months ended June 30, 2021 compared to $52.5 million net cash provided by financing activities during the six months ended June 30, 2020.

We repaid $457.8 million under the revolving credit facility during the six months ended June 30, 2021, compared to net proceeds of $161.6 million under the revolving credit facility during the six months ended June 30, 2020.

In addition, we paid quarterly cash distributions totaling $79.5 million during the six months ended June 30, 2021, compared to quarterly cash distributions totaling $61.5 million during the six months ended June 30, 2020.

On May 24, 2021, the

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.

Partnership and our wholly owned subsidiary Delek Logistics Finance Corp.

("Finance Corp." and together with the Partnership, the "Issuers") sold $400.0 million in aggregate principal amount of 7.125% senior notes due 2028 (the "2028 Notes").

Proceeds of $400.0 million were received and deferred financing costs amounting to $6.3 million were paid.

The Partnership used the net proceeds received from the sale of the 2028 Notes to repay portion of the outstanding borrowings under the revolving credit facility.

The sources of cash during the six months ended June 30, 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.

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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.

As of June 30, 2021, we had total indebtedness of $928.7 million comprised of $288.8 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility"), $246.2 million of 6.75% senior notes due 2025 (the “2025 Notes”), the latter net of deferred financing costs and original issue discount, and $393.7 million of the 2028 Notes, net of deferred financing costs.

Deferred financing costs and original issue discount on the 2025 Notes amounted to $2.9 million and $0.9 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:

Deferred financing costs on the 2028 Notes amounted to $6.3 million.

The decrease of $63.6 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 six months ended June 30, 2021 and amortization of the deferred financing costs and original issuance discount under our 2025 Notes, partially offset by the incurrence of the new 2028 Notes.

As of June 30, 2021, our total indebtedness consisted of:

• An aggregate principal amount of $288.8 million under the DKL Credit Facility ("revolving credit facility"), due on September 28, 2023, with an average borrowing rate of 2.50%.

• An aggregate principal amount of $246.2 million, under the 2025 Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.21%.

We believe we were in compliance with the covenants in all our debt facilities as of March 31, 2021.

• An aggregate principal amount of $393.7 million, under the 2028 Notes (7.125% senior notes), due in 2028, with an effective interest rate of 7.41%.

We believe we were in compliance with the covenants in all our debt facilities as of June 30, 2021.

See Note 7 to our accompanying condensed consolidated financial statements for a complete discussion of our third-party indebtedness.

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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.

The IDR Restructuring Transaction on August 13,

Management's Discussion and Analysis

2020 permanently eliminated all of the IDRs.

See Note 3 to our accompanying condensed consolidated financial statements for additional details.

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

The following table summarizes our actual capital expenditures for the six months ended June 30, 2021 and planned capital expenditures for the full year 2021 by segment and by major category (in thousands):

Full Year 2021 Forecast Six Months Ended June 30, 2021

Pipelines and Transportation

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Regulatory (3)

$ 3,113 $ 254

Maintenance (1)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis