Delek Logistics Partners, LP 10-Q

Item 1. Financial Statements Delek Logistics Partners, LP Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except unit and per unit data) March 31, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 9,672 $ 3,755 Accounts receivable 56,993 41,131 Accounts receivable from related parties 36,588 28,443 Inventory 1,655 2,264 Other current assets 615 676 Total current assets 105,523 76,269 Property, plant and equipment: Property, plant and equipment 1,336,053 1,320,510 Less: accumulated depreciation ( 406,009 ) ( 384,359 ) Property, plant and equipment, net 930,044 936,151 Equity method investments 238,185 241,337 Customer relationship intangible, net 176,811 181,336 Marketing contract intangible, net 100,352 102,155 Rights-of-way, net 60,141 59,536 Goodwill 12,203 12,203 Operating lease right-of-use assets 17,641 19,043 Other non-current assets 13,471 14,216 Total assets $ 1,654,371 $ 1,642,246 LIABILITIES AND DEFICIT Current liabilities: Accounts payable $ 26,313 $ 26,290 Current portion of long-term debt — 30,000 Interest payable 12,710 5,805 Excise and other taxes payable 7,638 10,321 Current portion of operating lease liabilities 6,442 6,697 Accrued expenses and other current liabilities 4,098 11,477 Total current liabilities 57,201 90,590 Non-current liabilities: Long-term debt, net of current portion 1,601,226 1,673,789 Operating lease liabilities, net of current portion 7,367 8,335 Asset retirement obligations 10,225 10,038 Other non-current liabilities 20,819 21,363 Total non-current liabilities 1,639,637 1,713,525 Equity (Deficit): Common unitholders - public; 12,898,253 units issued and outstanding at March 31, 2024 ( 9,299,763 at December 31, 2023) 290,051 160,402 Common unitholders - Delek Holdings; 34,311,278 units issued and outstanding at March 31, 2024 ( 34,311,278 at December 31, 2023) ( 332,518 ) ( 322,271 ) Total deficit ( 42,467 ) ( 161,869 ) Total liabilities and deficit $ 1,654,371 $ 1,642,246 See accompanying notes to the condensed consolidated financial statements 3 | Financial Statements Delek Logistics Partners, LP Condensed Consolidated Statements of Comprehensive Income (Unaudited) (In thousands, except unit and per unit data) Three Months Ended March 31, 2024 2023 Net revenues Affiliate (1) $ 139,625 $ 124,999 Third Party 112,450 118,526 Net revenues 252,075 243,525 Cost of sales: Cost of materials and other - affiliate (1) 92,882 91,071 Cost of materials and other - third party 30,810 35,025 Operating expenses (excluding depreciation and amortization presented below) 31,695 24,215 Depreciation and amortization 25,167 19,764 Total cost of sales 180,554 170,075 Operating expenses related to wholesale business (excluding depreciation and amortization presented below) 221 525 General and administrative expenses 4,863 7,510 Depreciation and amortization 1,328 1,341 Loss on disposal of assets 567 142 Total operating costs and expenses 187,533 179,593 Operating income 64,542 63,932 Interest expense, net 40,229 32,581 Income from equity method investments ( 8,490 ) ( 6,316 ) Other income, net ( 171 ) ( 2 ) Total non-operating expenses, net 31,568 26,263 Income before income tax expense 32,974 37,669 Income tax expense 326 302 Net income attributable to partners $ 32,648 $ 37,367 Comprehensive income attributable to partners $ 32,648 $ 37,367 Net income per limited partner unit: Basic $ 0.74 $ 0.86 Diluted $ 0.73 $ 0.86 Weighted average limited partner units outstanding: Basic 44,406,356 43,569,963 Diluted 44,422,817 43,585,297 Cash distributions per common limited partner unit $ 1.070 $ 1.025 (1) See Note 2 for a description of our material affiliate revenue and purchases transactions. See accompanying notes to the condensed consolidated financial statements 4 | Financial Statements Delek Logistics Partners, LP Condensed Consolidated Statements of Partners' Equity (Deficit) (Unaudited) (in thousands) Common - Public Common - Delek Holdings Total Balance as of December 31, 2023 $ 160,402 $ ( 322,271 ) $ ( 161,869 ) Cash distributions ( 10,012 ) ( 36,198 ) ( 46,210 ) Net income attributable to partners 7,404 25,244 32,648 Issuance of units 132,327 — 132,327 Other ( 70 ) 707 637 Balance as of March 31, 2024 $ 290,051 $ ( 332,518 ) $ ( 42,467 ) Common - Public Common - Delek Holdings Total Balance as of December 31, 2022 $ 172,119 $ ( 282,819 ) $ ( 110,700 ) Cash distributions ( 9,442 ) ( 34,998 ) ( 44,440 ) Net income attributable to partners 7,940 29,427 37,367 Other ( 95 ) 446 351 Balance as of March 31, 2023 $ 170,522 $ ( 287,944 ) $ ( 117,422 ) See accompanying notes to the condensed consolidated financial statements 5 | Financial Statements Delek Logistics Partners, LP Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net income $ 32,648 $ 37,367 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,495 21,105 Non-cash lease expense 1,939 2,200 Amortization of marketing contract intangible 1,803 1,803 Amortization of deferred revenue ( 572 ) ( 444 ) Amortization of deferred financing costs and debt discount 1,250 1,127 Income from equity method investments ( 8,490 ) ( 6,316 ) Dividends from equity method investments 9,509 9,238 Loss on extinguishment of debt 3,571 — Other non-cash adjustments 1,492 780 Changes in assets and liabilities: Accounts receivable ( 15,862 ) 2,165 Inventories and other current assets 670 ( 1,482 ) Accounts payable and other current liabilities ( 2,359 ) ( 36,430 ) Accounts receivable/payable to related parties ( 8,145 ) ( 1,578 ) Non-current assets and liabilities, net ( 91 ) ( 345 ) Net cash provided by operating activities 43,858 29,190 Cash flows from investing activities: Purchases of property, plant and equipment ( 11,255 ) ( 27,837 ) Proceeds from sales of property, plant and equipment 42 — Purchases of intangible assets ( 781 ) ( 582 ) Distributions from equity method investments 2,133 1,440 Net cash used in investing activities ( 9,861 ) ( 26,979 ) Cash flows from financing activities: Distributions to common unitholders - public ( 10,012 ) ( 9,442 ) Distributions to common unitholders - Delek Holdings ( 36,198 ) ( 34,998 ) Proceeds from term debt 650,000 — Payments on term debt ( 531,250 ) ( 3,750 ) Proceeds from revolving facility 184,900 143,500 Payments on revolving facility ( 400,200 ) ( 93,400 ) Proceeds from issuance of units 132,327 — Payments on other financing agreements ( 6,214 ) — Deferred financing costs paid ( 10,946 ) ( 400 ) Other financing activities ( 487 ) ( 727 ) Net cash (used in) provided by financing activities ( 28,080 ) 783 Net increase in cash and cash equivalents 5,917 2,994 Cash and cash equivalents at the beginning of the period 3,755 7,970 Cash and cash equivalents at the end of the period $ 9,672 $ 10,964 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 28,503 $ 20,210 Non-cash investing activities: Increase in accrued capital expenditures $ 3,910 $ 8,258 Non-cash financing activities: Non-cash lease liability arising from obtaining right of use assets during the period $ 537 $ 3,456 See accompanying notes to the condensed consolidated financial statements 6 | Notes to the Condensed Consolidated Financial Statements (Unaudited) Delek Logistics Partners, LP Notes to the Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Basis of Presentation As used in this report, the terms "Delek Logistics Partners, LP," the "Partnership," "we," "us," or "our" may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole. The Partnership is a Delaware limited partnership formed in April 2012 by Delek US Holdings, Inc. ("Delek Holdings") and its subsidiary Delek Logistics GP, LLC, our general partner (our "general partner"). The Partnership provides gathering, pipeline and other transportation services primarily for crude oil and natural gas customers, storage, wholesale marketing and terminalling services primarily for intermediate and refined product customers, and water disposal and recycling services through its owned assets and joint ventures located primarily in the Permian Basin (including the Delaware sub-basin) and other select areas in the Gulf Coast region. A 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, Texas (the "Tyler Refinery"), El Dorado, Arkansas (the "El Dorado Refinery") and Big Spring, Texas (the "Big Spring Refinery"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted, although management believes that the disclosures herein are adequate to make the financial information presented not misleading. Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP applied on a consistent basis with those of the annual audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report on Form 10-K"), filed with the U.S. Securities and Exchange Commission (the "SEC") on February 28, 2024 and in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K. All adjustments necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been included. All intercompany accounts and transactions have been eliminated. Such intercompany transactions do not include those with Delek Holdings or our general partner, which are presented as related parties in these accompanying condensed consolidated financial statements. All adjustments are of a normal, recurring nature. Operating results for the interim period should not be viewed as representative of results that may be expected for any future interim period or for the full year. Accounting Pronouncements Not Yet Adopted ASU 2023-06, Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative In October 2023, the FASB issued ASU 2023-06 Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ("ASU 2023-06"). The main provision of ASU 2023-06 is to clarify or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the FASB accounting standard codification with the SEC's regulations. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Partnership is currently evaluating the provisions of the amendments and the impact on its future condensed consolidated statements, but does not currently expect adopting this new guidance will have a material impact on its condensed consolidated financial statements and related disclosures. 2. Related Party Transactions Commercial Agreements 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 and crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings. Most of these agreements have an initial term ranging from five to ten years , which may be extended for various renewal terms at the option of Delek Holdings. The fees under each agreement are payable to us monthly by Delek Holdings or certain third parties to whom Delek Holdings has assigned certain of its rights and are generally subject to increase or decrease on July 1 of each year, by the amount of any change in various inflation-based indices, however, in no event will the fees be adjusted below the amount initially set forth in the applicable agreement. Under each of these agreements, we are required to maintain the capabilities of our pipelines and terminals, such that Delek Holdings may throughput and/or store, as the case may be, specified volumes of crude oil, intermediate and refined products. See our Annual Report on Form 10-K for a more complete description of our material commercial agreements and other agreements with Delek Holdings. 7 | Notes to the Condensed Consolidated Financial Statements (Unaudited) Other Agreements with Delek Holdings In addition to the commercial agreements described above, the Partnership has entered into the following agreements with Delek Holdings: Omnibus Agreement The Partnership entered into an omnibus agreement with Delek Holdings, our general partner, Delek Logistics Operating, LLC, Lion Oil Company, LLC and certain of the Partnership’s and Delek Holdings' other subsidiaries on November 7, 2012, which has been amended and restated from time to time in connection with acquisitions from Delek Holdings (collectively, as amended and restated, the "Omnibus Agreement"). The Omnibus Agreement governs the provision of certain operational services and reimbursement obligations, among other matters, between the Partnership and Delek Holdings, and obligates us to pay an annual fee of $ 4.4 million to Delek Holdings for its provision of centralized corporate services to the Partnership. Pursuant to the terms of the Omnibus Agreement, we are reimbursed by Delek Holdings for certain capital expenditures. These amounts are recorded in other long-term liabilities and are amortized to revenue over the life of the underlying revenue agreement corresponding to the asset. There was no reimbursement by Delek Holdings during the three months ended March 31, 2024 and 2023. Additionally, we are reimbursed or indemnified, as the case may be, for costs incurred in excess of certain amounts related to certain asset failures, pursuant to the terms of the Omnibus Agreement. As of March 31, 2024 and December 31, 2023, there was no receivable from related parties for these matters. These reimbursements are recorded as reductions to operating expenses. There were no reimbursements for these matters in each of the three month periods ended March 31, 2024 and 2023. Other Transactions 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 majority of the gathering systems have 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 oversight of the project design, procurement and construction of project segments and provides other related services. Pursuant to the terms of the DPG Management Agreement, the Partnership receives a monthly operating services fee and a construction services fee, which includes the Partnership's direct costs of managing the project plus an additional percentage fee of the construction costs of each project segment. The agreement extends through December 2024. Total fees paid to the Partnership were $ 0.4 million for both the three months ended March 31, 2024 and 2023, which are recorded in affiliate revenue in our condensed consolidated statements of income. Additionally, the Partnership incurs the costs in connection with the construction of the assets and is subsequently reimbursed by Delek Holdings. Amounts reimbursable by Delek Holdings are recorded in accounts receivable from related parties. Related Party Revolving Credit Facility On November 6, 2023, the Partnership and certain of its subsidiaries, as guarantors, entered into the Related Party Revolving Credit Facility (as defined below) with Delek Holdings. See Note 5 - Long-Term Obligations for further information. Summary of Transactions Revenues from affiliates consist primarily of revenues from gathering, transportation, storage, offloading, Renewable Identification Numbers, wholesale marketing and products terminalling services provided primarily to Delek Holdings based on regulated tariff rates or contractually based fees and product sales. Affiliate operating expenses are primarily comprised of amounts we reimburse Delek Holdings, or our general partner, as the case may be, for the services provided to us under the Partnership Agreement. These expenses could also include reimbursement and indemnification amounts from Delek Holdings, as provided under the Omnibus Agreement. Additionally, the Partnership is required to reimburse Delek Holdings for direct or allocated costs and expenses incurred by Delek Holdings on behalf of the Partnership and for charges Delek Holdings incurred for the management and operation of our logistics assets, including an annual fee for various centralized corporate services, which are included in general and administrative expenses. In addition to these transactions, we purchase refined products and bulk biofuels from Delek Holdings, the costs of which are included in cost of materials and other-affiliate. 8 | Notes to the Condensed Consolidated Financial Statements (Unaudited) A summary of revenue, purchases and expense transactions with Delek Holdings and its affiliates are as follows (in thousands): Three Months Ended March 31, 2024 2023 Revenues $ 139,625 $ 124,999 Purchases $ 92,882 $ 91,071 Operating and maintenance expenses $ 18,218 $ 8,823 General and administrative expenses $ 2,999 $ 12,215 Quarterly Cash Distributions Date of Distribution Distributions paid to Delek Holdings (in thousands) February 12, 2024 36,198 May 15, 2024 (1) 36,713 Total $ 72,911 February 9, 2023 $ 34,998 May 15, 2023 $ 35,169 Total $ 70,167 (1) On April 25, 2024, the board of directors of our general partner declared this quarterly cash distribution based on the available cash as of the date of determination. 3. Revenues The following table represents a disaggregation of revenue for the gathering and processing, wholesale marketing and terminalling, and storage and transportation segments for the periods indicated (in thousands): Three Months Ended March 31, 2024 Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated Service Revenue - Third Party $ 23,385 $ — $ 2,732 $ 26,117 Service Revenue - Affiliate (1) 2 13,216 13,545 26,763 Product Revenue - Third Party 19,945 66,388 — 86,333 Product Revenue - Affiliate 3,950 27,746 — 31,696 Lease Revenue - Affiliate 48,601 11,920 20,645 81,166 Total Revenue $ 95,883 $ 119,270 $ 36,922 $ 252,075 Three Months Ended March 31, 2023 Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated Service Revenue - Third Party $ 13,179 $ — $ 297 $ 13,476 Service Revenue - Affiliate (1) 4,301 9,271 20,609 34,181 Product Revenue - Third Party 26,492 78,558 — 105,050 Product Revenue - Affiliate 4,670 979 — 5,649 Lease Revenue - Affiliate 43,790 23,501 17,878 85,169 Total Revenue $ 92,432 $ 112,309 $ 38,784 $ 243,525 (1) Net of $1,803 of amortization expense for both the three months ended March 31, 2024 and 2023, related to marketing contract intangible recorded in the wholesale marketing and terminalling segment. As of March 31, 2024, we expect to recognize approximately $ 1.1 billion in lease revenues related to our unfulfilled performance obligations pertaining to the minimum volume commitments and capacity utilization under the non-cancelable terms of our commercial agreements with Delek Holdings. Most of these agreements have an initial term ranging from five to ten years , which may be extended for various renewal terms. We disclose information about remaining performance obligations that have original expected durations of greater than one year. 9 | Notes to the Condensed Consolidated Financial Statements (Unaudited) Our unfulfilled performance obligations as of March 31, 2024 were as follows (in thousands): Remainder of 2024 $ 157,672 2025 210,230 2026 202,754 2027 184,975 2028 and thereafter 304,466 Total expected revenue on remaining performance obligations $ 1,060,097 4. Net Income per Unit Basic net income per unit attributable to limited partners is computed by dividing limited partners' interest in net income by the weighted-average number of outstanding common units. Diluted net income per unit attributable to common limited partners includes the effects of potentially dilutive units on our common units. As of March 31, 2024, the only potentially dilutive units outstanding consist of unvested phantom units. The calculation of net income per unit is as follows (in thousands, except unit and per unit amounts): Three Months Ended March 31, 2024 2023 Net income attributable to partners $ 32,648 $ 37,367 Weighted average limited partner units outstanding, basic 44,406,356 43,569,963 Dilutive effect of unvested phantom units 16,461 15,334 Weighted average limited partner units outstanding, diluted 44,422,817 43,585,297 Net income per limited partner unit: Basic $ 0.74 $ 0.86 Diluted (1) $ 0.73 $ 0.86 (1) There were 42,315 and $ 22,632 anti-dilutive common unit equivalents excluded from the diluted earnings per unit calculation during the three months ended March 31, 2024 and 2023, respectively. 5. Long-Term Obligations Outstanding borrowings under the Partnership’s debt instruments are as follows (in thousands): March 31, 2024 December 31, 2023 DKL Revolving Facility $ 565,200 $ 780,500 DKL Term Facility — 281,250 2029 Notes 650,000 — 2028 Notes 400,000 400,000 2025 Notes — 250,000 Principal amount of long-term debt 1,615,200 1,711,750 Less: Unamortized discount and deferred financing costs 13,974 7,961 Total debt, net of unamortized discount and deferred financing costs 1,601,226 1,703,789 Less: Current portion of long-term debt and notes payable — 30,000 Long-term debt, net of current portion $ 1,601,226 $ 1,673,789 10 | Notes to the Condensed Consolidated Financial Statements (Unaudited) DKL Credit Facility On October 13, 2022, the Partnership entered into a senior secured term loan with an original principal of $ 300.0 million (the "DKL Term Loan Facility"). On November 6, 2023, the Partnership entered into a First Amendment, a Second Amendment and a Third Amendment to the DKL Credit Facility (together, the “Amendments”) which among other things, extended the maturity of the DKL Term Loan Facility to April 15, 2025. The outstanding principal balance of $ 281.3 million was paid on March 13, 2024 from a portion of the proceeds received with the issuance of the 2029 Notes as indicated below. At the Partnership's option, borrowings bore interest at either the Adjusted Term Secured Overnight Financing Rate benchmark (“SOFR”) or U.S. dollar prime rate, plus an applicable margin. The applicable margin was 2.50 % for the first year of the DKL Term Loan Facility and 3.00 % for the second year for U.S. dollar prime rate borrowings. SOFR rate borrowings included a credit spread adjustment of 0.10 % to 0.25 % plus an applicable margin of 3.50 % for the first year and 4.00 % for the second year. At December 31, 2023, the weighted average borrowing rate was approximately 9.46 %. Debt extinguishment costs were $ 2.1 million and are recorded in interest expense, net in the accompanying condensed consolidated statements of income. On March 29, 2024, the Partnership entered into a Fourth Amendment to the fourth amended and restated senior secured revolving credit agreement (the "DKL Revolving Facility") which among other things increased the U.S. Revolving Credit Commitments (as defined in the DKL Credit Facility) by an amount equal to $ 100.0 million resulting in aggregate lender commitments under the Delek Logistics Revolving Credit Facility in an amount of $ 1,150.0 million, including up to $ 146.9 million for letters of credit and $ 31.9 million in swing line loans. This facility has a maturity date of October 13, 2027. The DKL Revolving Facility requires a quarterly unused commitment fee based on average commitment usage, currently at 0.45 % per annum. Interest is measured at either the U.S. dollar prime rate plus an applicable margin of 1.00 % to 2.00 % depending on the Partnership’s Total Leverage Ratio (as defined in the DKL Credit Agreement), or a SOFR rate plus a credit spread adjustment of 0.10 % or 0.25 % and an applicable margin ranging from 2.00 % to 3.00 % depending on the Partnership’s Total Leverage Ratio. As of March 31, 2024 and December 31, 2023, the weighted average interest rate was 8.18 % and 8.46 %, respectively. There were no letters of credit outstanding as of March 31, 2024 or December 31, 2023. The obligations under the DKL Revolving Facility are secured by first priority liens on substantially all of the Partnership’s and its subsidiaries’ tangible and intangible assets. The carrying value of outstanding borrowings under the DKL Revolving Facility as of March 31, 2024 and December 31, 2023 approximate their fair values. Our debt facilities contain affirmative and negative covenants and events of default the Partnership considers usual and customary. As of March 31, 2024, we were in compliance with covenants on all of our debt instruments. Related Party Revolving Credit Facility On November 6, 2023, the Partnership and certain of its subsidiaries, as guarantors, entered into a certain Promissory Note (the “Related Party Revolving Credit Facility”) with Delek Holdings. The Related Party Revolving Credit Facility provides for revolving borrowings with aggregate commitments of $ 70.0 million comprised of a (i) $ 55.0 million senior tranche and a (ii) $ 15.0 million subordinated tranche (the “Subordinated Tranche”), with the initial borrowings under the Subordinated Tranche conditioned upon the Partnership and Delek Holdings reaching an agreement with Fifth Third Bank, National Association, as administrative agent under the DKL Credit Facility, on subordination provisions and other material terms related to the Subordinated Tranche. The Related Party Revolving Credit Facility will bear interest at Term SOFR (as defined in the Related Party Revolving Credit Facility) plus 3.00 %. The Related Party Revolving Credit Facility proceeds will be used for the Partnership’s working capital purposes and other general corporate purposes. The Related Party Revolving Credit Facility will mature on June 30, 2028. The Related Party Revolving Credit Facility contains certain affirmative covenants, mandatory prepayments and events of default that the Partnership considers to be customary for an arrangement of this sort. The obligations under the Related Party Revolving Credit Facility are unsecured. On May 2, 2024, the Boards of Directors of Delek Holdings and our general partner authorized the termination of the intercompany loan agreement between Delek Holdings and the Partnership, with the termination expected to be effective on or around May 31, 2024. 2029 Notes On March 13, 2024, the Partnership and our wholly owned subsidiary Delek Logistics Finance Corp. ("Finance Corp." and together with the Partnership, the "Issuers") sold $ 650.0 million in aggregate principal amount of 8.625 % senior notes due 2029 (the "2029 Notes") at par, pursuant to an indenture with U.S. Bank Trust Company, National Association as trustee. Net proceeds were used to redeem the 2025 Notes including accrued interest, pay off the DKL Term Facility including accrued interest and to repay a portion of the outstanding borrowings under the DKL Revolving Facility. On April 17, 2024, the Issuers sold $ 200.0 million in aggregate principal amount of additional 8.625 % senior notes due 2029 (the “Additional 2029 Notes”), at 101.25 %. The Additional 2029 Notes were issued under the same indenture as the 2029 Notes and formed a part of the same series of notes as the 2029 Notes. The net proceeds were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility. 11 | Notes to the Condensed Consolidated Financial Statements (Unaudited) The 2029 Notes are general unsecured senior obligations of the Issuers and are unconditionally guaranteed jointly and severally on a senior unsecured basis by the Partnership's subsidiaries other than Finance Corp., and will be unconditionally guaranteed on the same basis by certain of the Partnership’s future subsidiaries. The 2029 Notes rank equal in right of payment with all existing and future senior indebtedness of the Issuers, and senior in right payment to any future subordinated indebtedness of the Issuers. The 2029 Notes will mature on March 15, 2029, and interest on the 2029 Notes is payable semi-annually in arrears on each March 15 and September 15, commencing September 15, 2024. At any time prior to March 15, 2026, the Issuers may redeem up to 35 % of the aggregate principal amount of the 2029 Notes with the net cash proceeds of one or more equity offerings by the Partnership at a redemption price of 108.625 % of the redeemed principal amount, plus accrued and unpaid interest, if any, subject to certain conditions and limitations. Prior to March 15, 2026, the Issuers may also redeem all or part of the 2029 Notes at a redemption price of the principal amount plus accrued and unpaid interest, if any, plus a "make whole" premium, subject to certain conditions and limitations. In addition, beginning on March 15, 2026, the Issuers may, subject to certain conditions and limitations, redeem all or part of the 2029 Notes, at a redemption price of 104.313 % of the redeemed principal for the twelve-month period beginning on March 15, 2026, 102.156 % for the twelve-month period beginning on March 15, 2027, and 100.00 % beginning on March 15, 2028 and thereafter, plus accrued and unpaid interest, if any. In the event of a change of control, subject to certain conditions and limitations, the Issuers will be obligated to make an offer for the purchase of the 2029 Notes from holders at a price equal to 101.00 % of the principal amount thereof, plus accrued and unpaid interest. We recorded $ 10.4 million of debt issuance costs which will be amortized over the term of the 2029 Notes and included in interest expense in the accompanying condensed consolidated statements of income. As of March 31, 2024, the effective interest rate was 8.81 %. The estimated fair value of the 2029 Notes was $ 664.3 million as of March 31, 2024, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy. 2028 Notes Our 2028 Notes are general unsecured senior obligations comprised of $ 400.0 million in aggregate principal of 7.125 % senior notes maturing June 1, 2028. The 2028 Notes are unconditionally guaranteed jointly and severally on a senior unsecured basis by the Partnership's existing subsidiaries (other than Delek Logistics Finance Corp.) and will be unconditionally guaranteed on the same basis by certain of the Partnership's future subsidiaries. As of March 31, 2024, the effective interest rate was 7.39 %. The estimated fair value of the 2028 Notes was $ 391.4 million and $ 380.4 million as of March 31, 2024 and December 31, 2023, respectively, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy. 2025 Notes Our 2025 Notes are general unsecured senior obligations comprised of $ 250.0 million in aggregate principal of 6.75 % senior notes maturing on May 15, 2025. Concurrent with the issuance of the 2029 Notes, the Partnership made a cash tender offer (the "Offer") for all of the outstanding 2025 Notes with a conditional notice of full redemption for the remaining balance not received from the Offer. The Partnership received tenders from holders of approximately $ 156.2 million in aggregate principal amount. All the remaining 2025 Notes were redeemed by March 29, 2024, pursuant to the notice of conditional redemption. Debt extinguishment costs were $ 1.5 million and are recorded in interest expense, net in the accompanying condensed consolidated statements of income. The estimated fair value of the 2025 Notes was $ 248.7 million as of December 31, 2023, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy. 6. Equity On March 12, 2024, we completed a public offering of its common units in which it sold 3,584,416 common units (including an overallotment option of 467,532 common units) to the underwriters of the offering at a price to the public of $ 38.50 per unit. The proceeds received from this offering (net of underwriting discounts, commissions and expenses) were $ 132.3 million and were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility. Underwriting discounts totaled $ 5.5 million. Equity Activity The table below summarizes the changes in the number of limited partner units outstanding from December 31, 2023 through March 31, 2024. Common - Public Common - Delek Holdings (1) Total Balance at December 31, 2023 9,299,763 34,311,278 43,611,041 Unit-based compensation awards (2) 14,074 — 14,074 Units issued 3,584,416 — 3,584,416 Balance at March 31, 2024 12,898,253 34,311,278 47,209,531 (1) As of March 31, 2024, Delek Holdings owned a 72.7 % limited partner interest in the Partnership. (2) Unit-based compensation awards are presented net of 6,711 units withheld for taxes as of March 31, 2024. 12 | Notes to the Condensed Consolidated Financial Statements (Unaudited) Cash Distributions Our Partnership Agreement sets forth the calculation to be used to determine the amount and priority of available cash distributions that our limited partner unitholders will receive. Our distributions earned with respect to a given period are declared subsequent to quarter end. The table below summarizes the quarterly distributions related to our quarterly financial results: Quarter Ended Total Quarterly Distribution Per Limited Partner Unit Total Cash Distribution (in thousands) March 31, 2023 $ 1.025 $ 44,664 June 30, 2023 $ 1.035 $ 45,112 September 30, 2023 $ 1.045 $ 45,558 December 31, 2023 $ 1.055 $ 46,010 March 31, 2024 $ 1.070 $ 50,514 7. Equity Method Investments The Partnership owns a 33 % membership interest in Red River Pipeline Company LLC ("Red River"), a joint venture operated with Plains Pipeline, L.P. Red River owns a 16-inch crude oil pipeline running from Cushing, Oklahoma to Longview, Texas with capacity of 235,000 bpd. Additionally, we have two pipeline joint ventures, in which we own a 50 % membership interest in the entity formed with an affiliate of Plains All American Pipeline, L.P. ("CP LLC") to operate one of these pipeline systems and a 33 % membership interest in the entity formed with Andeavor Logistics RIO Pipeline LLC ("Andeavor Logistics") to operate the other pipeline system. The Partnership's investment balances in these joint ventures were as follows (in thousands): As of March 31, 2024 As of December 31, 2023 Red River $ 140,036 $ 141,091 CP LLC 60,254 61,273 Andeavor Logistics 37,895 38,973 Total Equity Method Investments $ 238,185 $ 241,337 8. Segment Data We aggregate our operating segments into four reportable segments: (i) gathering and processing; (ii) wholesale marketing and terminalling; (iii) storage and transportation; and (iv) investment in pipeline joint ventures. Operations that are not specifically included in the reportable segments are included in Corporate and other segment. The CODM evaluates performance based on EBITDA for planning and forecasting purposes. EBITDA is an important measure used by management to evaluate the financial performance of our core operations. EBITDA is not a GAAP measure, but the components of EBITDA are computed using amounts that are determined in accordance with GAAP. A reconciliation of EBITDA to Net Income is included in the tables below. We define EBITDA as net income (loss) before net interest expense, income tax expense, depreciation and amortization expense, including amortization of marketing contract intangible, which is included as a component of net revenues in our accompanying condensed consolidated statements of income. Assets by segment are not a measure used to assess the performance of the Partnership by the CODM and thus is not disclosed. 13 | Notes to the Condensed Consolidated Financial Statements (Unaudited) The following is a summary of business segment operating performance as measured by EBITDA for the periods indicated (in thousands): Three Months Ended March 31, 2024 (In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated Net revenues: Affiliate (1) $ 52,553 $ 52,882 $ 34,190 $ — $ — $ 139,625 Third party 43,330 66,388 2,732 — — 112,450 Total revenue $ 95,883 $ 119,270 $ 36,922 $ — $ — $ 252,075 Segment EBITDA $ 57,772 $ 25,274 $ 18,127 $ 8,477 $ ( 8,149 ) $ 101,501 Depreciation and amortization 21,154 1,712 2,775 — 854 26,495 Amortization of customer contract intangible — 1,803 — — — 1,803 Interest expense, net — — — — 40,229 40,229 Income tax expense 326 Net income $ 32,648 Capital spending (2) $ 14,723 $ ( 84 ) $ 526 $ — $ — $ 15,165 Three Months Ended March 31, 2023 (In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated Net revenues: Affiliate (1) $ 52,761 $ 33,751 $ 38,487 $ — $ — $ 124,999 Third party 39,671 78,558 297 — — 118,526 Total revenue $ 92,432 $ 112,309 $ 38,784 $ — $ — $ 243,525 Segment EBITDA $ 55,445 $ 21,954 $ 13,422 $ 6,316 $ ( 3,979 ) $ 93,158 Depreciation and amortization 16,447 1,689 2,102 — 867 21,105 Amortization of customer contract intangible — 1,803 — — — 1,803 Interest expense, net — — — — 32,581 32,581 Income tax expense 302 Net income $ 37,367 Capital spending (2) $ 32,789 $ 3,116 $ 196 $ — $ — $ 36,101 (1) Affiliate revenue for the wholesale marketing and terminalling segment is presented net of amortization expense pertaining to the marketing contract intangible. (2) Capital spending includes additions on an accrual basis. 9. Commitments and Contingencies Litigation In the ordinary conduct of our business, we are from time to time subject to lawsuits, investigations and claims, including environmental claims and employee-related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our financial statements. Environmental, Health and Safety We are subject to extensive federal, state and local environmental and safety laws and regulations enforced by various agencies, including the Environmental Protection Agency (the "EPA"), the United States Department of Transportation, the Occupational Safety and Health Administration, as well as numerous state, regional and local environmental, safety and pipeline agencies. These laws and regulations govern the discharge of materials into the environment, waste management practices and pollution prevention measures, as well as the safe operation of our pipelines and the safety of our workers and the public. Numerous permits or other authorizations are required under these laws and regulations for the operation of our terminals, pipelines, saltwells, trucks and related operations, and may be subject to revocation, modification and renewal. 14 | Notes to the Condensed Consolidated Financial Statements (Unaudited) These laws and permits raise potential exposure to future claims and lawsuits involving environmental and safety matters, which could include soil, surface water and groundwater contamination, air pollution, personal injury and property damage allegedly caused by substances which we may have handled, used, released or disposed of, transported, or that relate to pre-existing conditions for which we may have assumed responsibility. We believe that our current operations are in substantial compliance with existing environmental and safety requirements. However, there have been and we expect that there will continue to be ongoing discussions about environmental and safety matters between us and federal and state authorities, including the receipt and response to notices of violations, citations and other enforcement actions, some of which have resulted or may result in changes to operating procedures and in capital expenditures. While it is often difficult to quantify future environmental or safety related expenditures, we anticipate that continuing capital investments and changes in operating procedures will be required to comply with existing and new requirements, as well as evolving interpretations and enforcement of existing laws and regulations. Releases of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, or is not a reimbursable event under the Omnibus Agreement, subject us to substantial expenses, including costs to respond to, contain and remediate a release, to comply with applicable laws and regulations and to resolve claims by governmental agencies or other persons for personal injury, property damage, response costs, or natural resources damages. 10. Subsequent Events Distribution Declaration On April 25, 2024, our general partner's board of directors declared a quarterly cash distribution of $ 1.070 per unit, payable on May 15, 2024, to unitholders of record on May 8, 2024 . 15 | Management's Discussion and Analysis