Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is management’s analysis of our financial performance and of significant trends that may affect our future performance. The MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (''SEC'') on February 26, 2025 (the ''Annual Report on Form 10-K''). Those statements in the MD&A that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See "Forward-Looking Statements" below for a discussion of the factors that could cause actual results to differ materially from those projected in these statements.
Unless otherwise noted or the context requires otherwise, references in this report to "Delek Logistics Partners, LP," the "Partnership," “we,” “us,” or “our” or like terms, may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole. Unless otherwise noted or the context requires otherwise, references in this report to "Delek Holdings" refer collectively to Delek US Holdings, Inc. and any of its subsidiaries, other than the Partnership and its subsidiaries and its general partner.
On January 2, 2025, we acquired 100% of the limited liability company interests in Gravity Water Intermediate Holdings LLC ("Gravity") from Gravity Water Holdings LLC related to water disposal and recycling operations in the Permian Basin and the Bakken (the “Gravity Acquisition”). See Note 2 to our condensed consolidated financial statements in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
The Partnership announces material information to the public about the Partnership, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Partnership's website (www.deleklogistics.com), the investor relations section of the website (www.deleklogistics.com/overview), the news section of its website (www.deleklogistics.com/news-releases), and/or social media, including its X (formerly known as Twitter) account (@DelekLogistics). The Partnership encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information. Please note that this list may be updated from time to time.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act. These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, statements regarding the effect, impact, potential duration or other implications of, or expectations expressed with respect to, the actions of members of the Organization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together with OPEC, "OPEC+") with respect to oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, including the H2O Midstream and Gravity acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” "forecasts", “predicts,” "strategy", “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to:
• our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements;
• our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all;
• Delek Holdings' future growth, strategic priorities, financial performance, share repurchases, crude oil supply pricing and flexibility and product distribution;
• industry dynamics, including Permian Basin growth, ownership concentration, efficiencies and takeaway capacity;
• the age and condition of our assets and operating hazards and other risks incidental to transporting, storing and gathering crude oil, intermediate and refined products, including, but not limited to, costs, penalties, regulatory or legal actions and other effects related to spills, releases and tank failures;
• changes in insurance markets impacting costs and the level and types of coverage available;
• the timing and extent of changes in commodity prices and demand for refined products, and the impact of events such as the conflicts in Ukraine and the Middle East, and the global response to such conflicts, and any future public health crisis on such demand;
• the wholesale marketing margins we are able to obtain and the number of barrels of product we are able to purchase and sell in our West Texas wholesale business;
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Management's Discussion and Analysis of Financial Condition and Results of Operations
• the shift from hydrocarbon energy sources to alternative energy sources;
• the suspension, reduction or termination of Delek Holdings' or its assignees' or third-party's obligations under our commercial agreements including the duration, fees or terms thereof;
• the ability to attract and retain key personnel;
• the results of our investments in joint ventures;
• the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements;
• the possibility of inefficiencies, curtailments, or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand as a result of a public health crisis;
• disruptions due to equipment interruption or failure, or other events, including terrorism, sabotage or cyber-attacks, at our facilities, Delek Holdings’ facilities or third-party facilities on which our business is dependent;
• changes in the availability and cost of capital of debt and equity financing;
• our reliance on information technology systems in our day-to-day operations;
• changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to governmental fiscal policy or a public health crisis;
• 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 a public health crisis;
• the timely receipt of required government approvals and permits;
• significant operational, investment or other changes required by existing or future environmental statutes and regulations, including international agreements and national or regional societal, legislation; and regulatory measures to limit or reduce greenhouse gas emissions;
• competitive conditions in our industry including capacity overbuild in areas where we operate;
• actions taken by our customers and competitors;
• the demand for crude oil, refined products and transportation and storage services;
• our ability to successfully implement our business plan;
• inability to complete growth projects on time and on budget;
• our ability to successfully complete acquisitions and integrate acquired businesses, and to achieve the anticipated benefits therefrom;
• 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;
• future decisions by OPEC+ regarding production and pricing and disputes between OPEC+ regarding such;
• changes or volatility in interest and inflation rates;
• labor relations;
• large customer defaults;
• changes in tax status and regulations;
• the effects of future litigation or environmental liabilities that are not covered by insurance; and
• other factors discussed elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.
Many of the foregoing risks and uncertainties are, and will be, exacerbated by any worsening of the global business and economic environment. In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition.
In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition.
All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary: Management's View of Our Business and Strategic Overview
Management's View of Our Business
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 refineries in Tyler, Texas (the "Tyler Refinery"), El Dorado, Arkansas (the "El Dorado Refinery") and Big Spring, Texas (the "Big Spring Refinery").
Business and Economic Environment Overview
During the three months ended March 31, 2025, we made significant strides in our commitment to being a full suite crude, gas and water midstream services provider in the Permian Basin, in addition to diversifying our customer base to include more third-party customers. In January 2025, the Partnership closed the Gravity Acquisition which includes integrated full-cycle water systems in the Midland Basin, in addition to water gathering, and transportation assets in the Bakken, and along with our H2O Midstream Acquisition, provides a strong opportunity for integrated crude and water services to its customers. Subsequent to March 31, 2025, we entered into a series of agreements with Delek Holdings, which among other things, will allow us to assume all of Delek Holdings’ rights and obligations to purchase crude oil under certain contracts associated with our existing Midland Gathering System. These transactions along with the acquisition of H2O and Gravity, significantly enhance our competitive position in the Midland basin and serve to further our economic separation from our sponsor and contribute to an increase third party revenue.
As producers continue to ramp up production within the Permian Basin, the Partnership is well positioned to continue to add value through our gathering and processing services as we have expanded our dedicated crude acreage in our Midland Gathering system. Additionally, in the Delaware Basin, we are expanding our natural gas processing capabilities by constructing a new natural gas processing plant and adding AGI and sour gas processing capabilities. We are currently in the commissioning phase of the gas plant expansion and anticipate reaching full operational capacity in the latter half of 2025. Our positioning allows our customers the ability to control quality and adds optionality to place barrels in a variety of markets.
As a result of these efforts, the Partnership saw a $6.4 million increase in net income during the three months ended March 31, 2025, as compared to the prior year period. Our EBITDA (as defined in "Non GAAP Measures" section below) decreased $16.0 million in 2025 as compared to 2024. This decrease is largely attributable to a change in classification of certain of our commercial agreements with Delek, which meet the criteria to be classified as sales-type leases. As such, certain throughput and storage fees that were previously recorded as revenue are now recorded as interest income under sales-type lease accounting. Our gathering and processing segment saw a $10.2 million increase in segment EBITDA, largely due to the H2O Midstream and Gravity acquisitions. Our wholesale marketing and terminalling segment saw a $12.0 million decrease in segment EBITDA. Our storage and transportation segment saw a $13.7 million decrease in segment EBITDA. Segment EBITDA for our investments in pipeline joint ventures increased by $1.7 million with the acquisition of the investment in Wink to Webster Holdings, LLC (the "W2W Investment") from Delek Holdings. See the “Results of Operations” section below for further discussion.
The near term economic outlook still has some uncertainty with the introduction of widespread tariffs by the U.S., geopolitical instability and commodity market volatility. The uncertainty surrounding trade negotiations and the potential for further expansion of tariffs have contributed to increased market and commodity volatility and potential economic downturns. That said, we are well positioned to manage through an economic downturn because of built-in recessionary protections which include minimum volume commitments on throughput and dedicated acreage agreements. Additionally, the Partnership has embraced opportunities to enhance our environmental stewardship. It is expected that renewables, other than hydrocarbons, will continue to grow as a percentage of total energy consumption; however, a material reduction in the reliance on oil and gas for energy consumption is unlikely in the near term. Therefore, we expect that liquid transportation fuels will continue to be in high demand, and we expect to continue to leverage the strength of our cash flows and balance sheet in order to continue maximizing unitholder returns and the long-term prospects for return on investment.
See further discussion below in 'Other 2025 Developments' detailing the strategic initiatives the Partnership has implemented in order to position ourselves as a premier, full-service midstream provider in the Permian Basin. These actions not only enhance our standing in the market but also move to align us as an independent, largely third-party cash flow company with a robust growth profile.
See further discussion on macroeconomic factors and market trends, including the impact on 2025, in the ‘Market Trends’ section below.
Other 2025 Developments
Unit Repurchase
On February 24, 2025, the Partnership and Delek Holdings entered into a Common Unit Purchase Agreement (the “Common Unit Purchase Agreement”) whereby the Partnership may repurchase common units from time to time from Delek Holdings in one or more transactions for an aggregate purchase price of up to $150.0 million through December 31, 2026 (each such repurchase, a “Repurchase”). During the three months ended March 31, 2025, 243,075 common units were repurchased from Delek Holdings and cancelled at the time of the transaction for a
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Management's Discussion and Analysis of Financial Condition and Results of Operations
total of $10.0 million. No common units were repurchased for the three months ended March 31, 2024. As of March 31, 2025, there was $140.0 million of authorization remaining under the Common Unit Repurchase Agreement.
Gravity Acquisition
On January 2, 2025, we acquired Gravity and related to water disposal and recycling operations in the Permian Basin and the Bakken for total consideration of $300.8 million. The purchase price was comprised of $209.3 million in cash and 2,175,209 of common units. This transaction further enhances our position as full service (crude, natural gas and water) provider in the Permian basin. The acquisition is synergistic to our recent acquisition of H2O Midstream and supplements our integrated crude and produced water gathering and disposal offering in the Midland Basin.
Delek Permian Gathering Dropdown
On May 1, 2025, Delek Holdings transferred the Delek Permian Gathering purchasing and blending business to the Partnership (the "DPG Dropdown”). In connection with the DPG Dropdown, the Partnership will assume all of Delek Holdings’ rights and obligations to purchase crude oil under certain contracts associated with the Partnership’s existing Midland Gathering System. Total consideration included the execution of the Termination Agreement (as defined below), the execution of the Throughput Agreement (as defined below), the execution of the El Dorado Purchase Agreement (as defined below) and cancellation of $58.8 million in existing receivables owed by Delek Holdings.
Commercial Agreements
On May 1, 2025, the Partnership entered into an agreement to terminate, in its entirety, the East Texas Marketing Agreement effective as of January 1, 2026 ("Termination Agreement").
On May 1, 2025, in connection with the DPG Dropdown, the Partnership amended and restated a throughput agreement with Delek Holdings for the El Dorado rail facility (the “Throughput Agreement”), which includes a minimum volume commitment for refined products until the termination of the Throughput Agreement, which will occur at the closing of the El Dorado Purchase (as defined below). Additionally, on May 1, 2025, in connection with the DPG Dropdown, the Partnership and Delek Holdings, entered into an asset purchase agreement (the “El Dorado Purchase Agreement”), whereby Delek Holdings will purchase the related El Dorado rail facility assets from the Partnership for cash consideration of $25.0 million (the “El Dorado Purchase”). The El Dorado Purchase is currently set to close January 1, 2026, subject to certain closing conditions as set forth in the El Dorado Purchase Agreement.
Omnibus Agreement
On May 1, 2025, we entered into an amended and restated Omnibus Agreement with Delek Holdings that provides for an increase in the Administrative Fee (as defined therein), which will be phased in over the two years beginning July 1 2025 and a binding obligation for both parties to enter into transition services agreements in the event of a change in control.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Segment Overview
We review operating results in four reportable segments: (i) gathering and processing; (ii) wholesale marketing and terminalling; (iii) storage and transportation; and (iv) investments in pipeline joint ventures. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each reportable segment based on the segment EBITDA, except for the investments in pipeline joint ventures segment, which is measured based on net income. Segment reporting is discussed in more detail in Note 9 to our condensed consolidated financial statements in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Gathering and Processing
The operational assets in our gathering and processing segment consist of our pipeline assets, Midland Gathering Assets, Midland Water Gathering Assets and Delaware Gathering Assets. The Midland Gathering Assets support our crude oil gathering activities which primarily serves Delek Holdings refining needs throughout the Permian Basin. The Midland Water Gathering Assets support our water disposal and recycling operations primarily in the Midland Basin in Texas. The Delaware Gathering Assets support our crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico. Finally, our gathering and processing assets are integrated with our pipeline assets, which we use to transport gathered crude oil as well as provide other crude oil, intermediate and refined products transportation mainly in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas, as well as to certain third parties. In providing these services, we do not take ownership of the refined products or crude oil that we transport. While we do not take ownership of gas that is gathered, we sell the processed gas at a market price which we remit to the producer, net of our fees. Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment. The combination of these operational assets provides a comprehensive, integrated midstream service offering to producers and customers.
Wholesale Marketing and Terminalling
Our wholesale marketing and terminalling segment provides wholesale marketing and terminalling services to Delek Holdings’ refining operations and to independent third parties from whom we receive fees for marketing, transporting, storing and terminalling refined products and to whom we wholesale market refined products. In providing certain of these services, we take ownership of the products and are therefore exposed to market risks related to the volatility of commodity and refined product prices in our West Texas operations, which depend on many factors, including demand and supply of refined products in the West Texas market, the timing of refined product deliveries and downtime at refineries in the surrounding area.
Storage and Transportation
The operational assets in our storage and transportation segment consist of tanks, offloading facilities, trucks and ancillary assets, which provide crude oil, intermediate and refined products transportation and storage services primarily in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas. Additionally, the assets in this segment provide crude oil transportation services to certain third parties. In providing these services, we do not take ownership of the products or crude oil that we transport or store. Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment.
Investments in Pipeline Joint Ventures
The Partnership owns a portion of four joint ventures (accounted for as equity method investments) that have constructed separate crude oil pipeline systems and related ancillary assets primarily in the Permian Basin and Gulf Coast regions and with strategic connections to Cushing, Midland and connections from Wink, Texas to Webster, Texas and other key exchange points, which provide crude oil and refined product pipeline transportation to third parties and subsidiaries of Delek Holdings.
Corporate and Other
The corporate and other segment primarily consists of general and administrative expenses not allocated to a reportable segment, interest expense and depreciation and amortization. When applicable, it may also contain operating segments that are not reportable and do not meet the criteria for aggregation with any of our existing reportable segments.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Strategic Overview
Long-Term Strategic Objectives
The Partnership’s Long-Term Strategic Objectives have been focused on providing a competitive yield and growing our distribution while maintaining healthy coverage and leverage ratios. To that end, we are focused on growing our asset base through a slew of accretive growth opportunities we are seeing in our areas of operation. We are supplementing our organic growth opportunities by accretive bolt-on acquisitions which enhance our full suite services offering to our customers. A secondary benefit of growing our contribution of third-party cash flows is to continue to increase our economic separation from our sponsor Delek Holdings and to progress deconsolidation.
2025 Strategic Focus Areas
In service to these overarching Long-Term Strategic Objectives, as we begin 2025, we focus on the following Strategic Focus Areas :
I. Achieve Strong Cash Flow Growth
II. Pursue Attractive Expansion Opportunities
III. Engage in Mutually Beneficial Transactions with Delek Holdings
IV. Optimize Our Existing Assets and Expand Our Customer Base
V. Expand our ESG Consciousness and Lower our Carbon Footprint
• Achieve Strong Cash Flow Growth. 2025 is likely to be a transformational year for Delek Logistics as it completes the expansion of the Libby gas processing plant and integrates two free cash flow accretive acquisitions in H2O Midstream and Gravity. The plant expansion and combined crude and water offerings in the Midland Basin are going to increase the Partnership's overall cash flow and improve our distribution coverage ratio.
• Pursue Attractive Expansion Opportunities. Continue to evaluate and pursue opportunities to grow our business through several organic growth opportunities and bolt-on acquisitions
◦ Organic growth opportunities. The partnership is in the middle of pursuing several attractive organic growth opportunities enabled by its advantageous position in the prolific Permian Basin. The gas plant expansion and addition of AGI and sour gas processing capabilities is enabling several additional growth options for the Partnership in the Delaware Basin. In the Midland Basin combined crude and water offering is appealing for our customers and bringing additional growth opportunities to our system.
◦ Pursue Acquisitions. Delek logistics will also continue to look for attractive bolt-on acquisitions which are accretive to its free cash flow, EBITDA and leverage profiles.
• Engage in Mutually Beneficial Transactions with Delek Holdings. A key tenet of the Partnership's strategy is to continue to increase its economic separation from Delek Holdings and increase the contribution of third-party cash flows in its overall profile. We will continue to evaluate our commercial agreements with Delek Holdings to engage in mutually beneficial negotiations to create incremental value for both ourselves and our sponsor.
• Optimize Our Existing Assets and Expand Our Customer Base. We will continue to enhance the profitability of our existing assets by adding incremental throughput volumes, improving operating efficiencies and increasing system-wide utilization. Additionally, we are seeking opportunities to further diversify our customer base by increasing third-party throughput volumes utilizing certain of our existing systems and expanding our existing asset portfolio to service more third-party customers.
• Expand our ESG Consciousness and Lower Our Carbon Footprint. Continue to look for ways to grow our business whilst staying conscious of and minimizing the negative environmental impact, while also seeking opportunities to invest in innovative technologies that will reduce our carbon emissions as we achieve our growth objectives and sustainably improve unitholder returns. We expect to achieve this objective through ESG-Conscious Investments with Clear Value Propositions and Sustainable Returns.
We continue to be focused on growth opportunities in the Permian Basin given our advantageous location in the Midland and the Delaware Basins. We believe that opportunities exist in crude, natural gas and water which will continue to enhance our gathering and processing segment.
The Partnership prioritizes safe and reliable operation of its assets to maintain financial stability and growth. We have successfully avoided lost time injuries for four years, demonstrating our strong safety protocols and adherence to regulations. This commitment protects employees, assets, and operations, minimizing financial losses and maintaining stakeholder trust.
Additionally, we have prioritized reducing our leverage ratio, providing us with more financial flexibility to pursue opportunities and expand operations. By reducing our leverage and maintaining a strong financial position, we are better equipped to navigate challenges that may arise. This financial stability also allows us to seize emerging opportunities that align with our strategic goals, ensuring that we can continue to deliver value to our unitholders.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
2025 Strategic Scorecard
Description of Strategic Success Achieve Strong Cash Flow Growth Pursue Attractive Expansion Opportunities Engage in Mutually Beneficial Transactions with Delek Holdings Optimize Our Existing Assets and Expand Our Customer Base Expand our ESG Consciousness and Lower our Carbon Footprint
Acquisition of Gravity ü ü ü
Repurchase of common units from Delek Holdings ü ü
Started commissioning phase for the natural gas processing plant expansion
ü ü ü
Executed agreements with Delek Holdings to further our economic separation and increase third-party revenue ü ü
Market Trends
Fluctuations in crude oil, natural gas and NGL prices and the prices of related refined and other hydrocarbon products impact operations in the midstream energy sector. For example, the prices of each of these 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. Exploration and production activities have a direct impact on volumes transported through our gathering assets in the geologic basins in which we operate. Additionally, the demand for hydrocarbon-based refined products and related crack spreads significantly impact production decisions of our refining customers and likewise throughputs on our pipelines and other logistics assets. Finally, fluctuations in demand and commodity prices for refined products, as well as the value attributable to RINs, directly impacts our wholesale marketing operations, where we are subject to short-term commodity price fluctuations at the rack. Most of the logistics services we provide (including transportation, gathering and processing services) are subject to long-term fee-based contracts with minimum volume commitments or long-term dedicated acreage agreements which mitigate most of our short-term financial risk to price and demand volatility. However, sustained depressed demand/prices over the longer term could not only curb exploration and production expansion opportunities under our agreements, it could also impact our customers' willingness or ability to renew commercial agreements or result in liquidity or credit constraints that could impact our longer term relationship with them.
That said, our recent expansion of our gas processing capabilities have improved both our customer and geographic diversification which lowers concentration risk in those areas, in addition to adding service offerings to our portfolio. Furthermore, our dedicated acreage agreements provide significant growth opportunities in strong economic conditions (e.g., high demand/high commodity prices) without incremental customer acquisition cost. Given all of these factors, we believe that we continue to be strategically positioned, even in tougher market conditions, to sustain positive operating results and cash flows and to continue developing profitable growth projects that are needed to support future distribution growth.
The charts on the following page provide historical commodity pricing statistics for crude oil, refined product and natural gas.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Non-GAAP Measures
Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our financial information presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"). These financial and operational non-GAAP measures include:
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of marketing contract intangible, which is included as a component of net revenues in our condensed consolidated statements of income and comprehensive income in Item 1. to this Quarterly Report on Form 10-Q.
• Distributable cash flow - calculated as net cash flow from operating activities adjusted for changes in assets and liabilities, maintenance capital expenditures net of reimbursements, sales-type lease receipts, net of income recognized and other adjustments not expected to settle in cash. The Partnership believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash.
EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:
• our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;
• the ability of our assets to generate sufficient cash flow to make distributions to our unitholders;
• our ability to incur and service debt and fund capital expenditures; and
• the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations. EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA and distributable cash flow have important limitations as analytical tools, because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in our industry, our definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility. See below for a reconciliation of EBITDA and distributable cash flow to their most directly comparable GAAP financial measures.
Non-GAAP Reconciliations
The following table provides a reconciliation of EBITDA and distributable cash flow (which are defined above) to the most directly comparable GAAP measure, or net income and net cash from operating activities, respectively.
Reconciliation of net income to EBITDA (in thousands)
Three Months Ended March 31,
2025 2024
Net income $ 39,034 $ 32,648
Add:
Income tax expense 182 326
Depreciation and amortization 27,716 26,495
Amortization of marketing contract intangible — 1,803
Interest expense, net 18,554 40,229
EBITDA $ 85,486 $ 101,501
Reconciliation of net cash from operating activities to distributable cash flow (in thousands)
Three Months Ended March 31,
2025 2024
Net cash provided by operating activities $ 31,550 $ 43,858
Changes in assets and liabilities 32,080 25,787
Distributions from equity method investments in investing activities 2,127 2,133
Non-cash lease expense (2,267) (1,939)
Regulatory and sustaining capital expenditures not distributable (1)
(645) (1,279)
Reimbursement from Delek Holdings for capital expenditures (2)
9 286
Sales-type lease receipts, net of income recognized 5,159 —
Accretion (409) (187)
Deferred income taxes (185) (101)
Gain (loss) on disposal of assets 4,286 (567)
Distributable cash flow $ 71,705 $ 67,991
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Management's Discussion and Analysis of Financial Condition and Results of Operations
(1) Regulatory and sustaining capital expenditures represent cash expenditures (including 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 include 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.
(2) Reimbursement from Delek Holdings for capital expenditures represents amounts for certain capital expenditures reimbursable to us from Delek Holdings pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our condensed consolidated financial statements in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q).
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Summary of Financial and Other Information
A discussion and analysis of the factors contributing to our results of operations is presented below. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.
The following table provides summary financial data (in thousands, except unit and per unit amounts):
Summary Statement of Operations Data (1)
Three Months Ended March 31,
2025 2024
Net revenues:
Gathering and Processing $ 118,603 $ 95,883
Wholesale marketing and terminalling 106,699 119,270
Storage and transportation 24,628 36,922
Total 249,930 252,075
Cost of materials and other 129,052 123,692
Operating expenses (excluding depreciation and amortization presented below) 40,985 31,916
General and administrative expenses 8,864 4,863
Depreciation and amortization 27,716 26,495
Other operating (income) expense, net (4,286) 567
Operating income $ 47,599 $ 64,542
Interest income (22,547) —
Interest expense 41,101 40,229
Income from equity method investments (10,150) (8,490)
Other income, net (21) (171)
Total non-operating expenses, net 8,383 31,568
Income before income tax expense 39,216 32,974
Income tax expense 182 326
Net income 39,034 32,648
Comprehensive income 39,034 32,648
EBITDA (2)
$ 85,486 $ 101,501
Net income per limited partner unit:
Basic $ 0.73 $ 0.74
Diluted $ 0.73 $ 0.73
Weighted average limited partner units outstanding:
Basic 53,604,659 44,406,356
Diluted 53,633,836 44,422,817
(1) This information is presented at a summary level for your reference. See the condensed consolidated statements of income and comprehensive income in Item 1. to this Quarterly Report on Form 10-Q for more detail regarding our results of operations.
(2) For a definition of EBITDA see "Non-GAAP Measures" above.
We report operating results in four reportable segments:
• Gathering and Processing
• Wholesale Marketing and Terminalling
• Storage and Transportation
• Investments in Pipeline Joint Ventures
Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of its reportable segments based on the segment EBITDA.
31 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Consolidated Results of Operations — Comparison of the three months ended March 31, 2025 compared to the three months ended March 31, 2024
Net Revenues
Q1 2025 vs. Q1 2024
Net revenues decreased by $2.1 million, or 0.9%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The decrease was primarily driven by the following:
• decrease due to recording certain throughput fees as interest income under sales-type lease accounting that were previously recorded as revenue in the prior year period;
• decrease of $6.0 million due to the assignment of the Big Spring Refinery marketing agreement to Delek Holdings in the third quarter of 2024;
• decreased revenue of $2.7 million in our West Texas marketing operations primarily driven by a decrease in average sales prices per gallon, partially offset by an increase in volumes sold; and
• partially offset by incremental revenue associated with the H2O Midstream and Gravity Acquisitions of $16.5 million and $22.9 million, respectively.
Cost of Materials and Other
Q1 2025 vs. Q1 2024
Cost of materials and other increased by $5.4 million, or 4.3%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by the following:
• increased costs in our gathering and processing segment of $6.5 million primarily associated with incremental costs associated with the H2O Midstream and Gravity Acquisitions and increased Midland Gathering volumes; and
• partially offset by decreased costs of $2.3 million in our West Texas marketing operations primarily driven by decreased costs per gallon, partially offset by an increase in volumes sold.
Operating Expenses
Q1 2025 vs. Q1 2024
Operating expenses increased by $9.1 million, or 28.4%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by the following:
• incremental expenses associated with the H2O Midstream and Gravity Acquisitions of $5.4 million and $6.8 million, respectively; and
• partially offset by a decrease in outside services.
General and Administrative Expenses
Q1 2025 vs. Q1 2024
General and administrative expenses increased by $4.0 million, or 82.3%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by transaction costs associated with the Gravity Acquisition.
Depreciation and Amortization
Q1 2025 vs. Q1 2024
Depreciation and amortization increased by $1.2 million, or 4.6%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by the H2O Midstream and Gravity Acquisitions.
32 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
Other operating income, net
Q1 2025 vs. Q1 2024
Other operating income, net increased by $4.9 million, or 855.9%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by $4.3 million in condemnation proceeds received in the first quarter of 2025.
Interest Income
Q1 2025 vs. Q1 2024
Interest income increased by $22.5 million, or 100.0%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by income from certain of our commercial agreements with Delek Holdings that met the criteria to be accounted for as sales-type leases during the third quarter of 2024.
Interest Expense
Q1 2025 vs. Q1 2024
Interest expense increased by $0.9 million, or 2.2%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024.
Results from Equity Method Investments
Q1 2025 vs. Q1 2024
Income from equity method investments increased by $1.7 million, or 19.6%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to the following:
• The acquisition of the W2W Investment on August 5, 2024, which contributed income of $5.4 million during the period; and
• partially offset by a $3.0 million decrease in income from our investment in Red River Pipeline Company LLC.
33 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
Operating Segments
Gathering and Processing Segment
The following tables and discussion present the results of operations and certain operating statistics of the gathering and processing segment for the three months ended March 31, 2025 and 2024:
Gathering and Processing
Three Months Ended March 31,
2025 2024
Net revenues $ 118,603 $ 95,883
Cost of materials and other $ 24,344 $ 17,869
Operating expenses (excluding depreciation and amortization) $ 30,581 $ 19,705
Segment EBITDA $ 67,939 $ 57,772
Throughputs (bpd (1) )
Three Months Ended March 31,
2025 2024
El Dorado Assets:
Crude pipelines (non-gathered) 61,888 73,011
Refined products pipelines to Enterprise Systems 56,010 63,234
El Dorado Gathering System 10,321 12,987
East Texas Crude Logistics System 26,918 19,702
Midland Gathering System 246,090 213,458
Plains Connection System 179,240 256,844
Delaware Gathering Assets Volumes
Three Months Ended March 31,
2025 2024
Natural Gas Gathering and Processing (Mcfd (2) )
59,809 76,322
Crude Oil Gathering (bpd (1) )
122,226 123,509
Water Disposal and Recycling (bpd (1) )
128,499 129,264
Midland Water Gathering System Volumes (3)
Three Months Ended March 31,
2025 2024
Water Disposal and Recycling (bpd (1) )
632,972 —
(1) bpd - average barrels per day.
(2) Mcfd - average thousand cubic feet per day.
(3) Consists of volumes of H2O Midstream and Gravity. Gravity volumes are from January 2, 2025 to March 31, 2025.
Operational comparison of the three months ended March 31, 2025 compared to the three months ended March 31, 2024
Net Revenues
Q1 2025 vs. Q1 2024
Net revenues for the gathering and processing segment increased by $22.7 million, or 23.7%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to the following:
• an increase in revenue associated with the H2O Midstream operations of $16.5 million which began in the third quarter of 2024;
• an increase in revenue associated with the Gravity operations of $22.9 million which began on January 1, 2025; and
• partially offset by a decrease due to recording certain throughput fees as interest income under sales-type lease accounting that were previously recorded as revenue in the prior year period.
34 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
Cost of Materials and Other
Q1 2025 vs. Q1 2024
Cost of materials and other for the gathering and processing segment increased by $6.5 million, or 36.2%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, driven primarily by the following:
• incremental costs associated with the H2O Midstream and Gravity Acquisitions of $0.8 million and $2.0 million, respectively; and
• increased Midland Gathering volumes.
Operating Expenses
Q1 2025 vs. Q1 2024
Operating expenses for the gathering and processing segment increased by $10.9 million, or 55.2%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by the following:
• incremental costs associated with the H2O Midstream and Gravity Acquisitions of $5.4 million and $6.8 million, respectively; and
• partially offset by a decrease in outside services.
EBITDA
Q1 2025 vs. Q1 2024
EBITDA increased by $10.2 million, or 17.6%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024 primarily driven by the following:
• incremental EBITDA of $10.2 million and $13.9 million associated with H2O Midstream and Gravity Acquisitions, respectively; and
• partially offset by lower revenue related to sales-type lease accounting.
35 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
Wholesale Marketing and Terminalling Segment
The following tables and discussion present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three months ended March 31, 2025 and 2024:
Wholesale Marketing and Terminalling
Three Months Ended March 31,
2025 2024
Net revenues $ 106,699 $ 119,270
Cost of materials and other $ 89,653 $ 91,904
Operating expenses (excluding depreciation and amortization) $ 3,799 $ 3,828
Segment EBITDA $ 13,237 $ 25,274
Operating Information
Three Months Ended March 31,
2025 2024
East Texas - Tyler Refinery sales volumes (average bpd) (1)
67,876 66,475
Big Spring marketing throughputs (average bpd) (2)
— 76,615
West Texas marketing throughputs (average bpd) 10,826 9,976
West Texas marketing gross margin per barrel $ 1.64 $ 2.15
Terminalling throughputs (average bpd) (3)
135,404 136,614
(1) Excludes jet fuel and petroleum coke.
(2) Marketing agreement terminated on August 5, 2024 upon assignment to Delek Holdings.
(3) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas terminals, our El Dorado and North Little Rock, Arkansas terminals and our Memphis and Nashville, Tennessee terminals.
Operational comparison of the three months ended March 31, 2025 compared to the three months ended March 31, 2024
Net Revenues
Q1 2025 vs. Q1 2024
Net revenues for the wholesale marketing and terminalling segment decreased by $12.6 million, or 10.5%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by the following:
• decrease due to recording certain throughput fees as interest income under sales-type lease accounting that were previously recorded as revenue in the prior year period; and
• decrease of $6.0 million due to the assignment of the Big Spring refinery marketing agreement to Delek Holdings in the third quarter of 2024; and
• decreased revenue of $2.7 million in our West Texas marketing operations primarily driven by a decrease in average sales prices per gallon, partially offset by an increase in volumes sold:
◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.20 and $0.32 per gallon, respectively; and
◦ the average volumes of gasoline and diesel sold increased by 1.1 million and 1.7 million gallons, respectively.
36 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following charts show summaries of the average sales prices per gallon of gasoline and diesel and refined products volume impacting our West Texas operations for the three months ended March 31, 2025 and 2024.
Cost of Materials and Other
Q1 2025 vs. Q1 2024
Cost of materials and other for the wholesale marketing and terminalling segment decreased by $2.3 million, or 2.4% , in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by the following:
• decreased costs of materials and other of $2.3 million in our West Texas marketing operations primarily driven by decreased costs per gallon, partially offset by an increase in volumes sold:
◦ the average cost per gallon of gasoline and diesel sold decreased by $0.16 per gallon and $0.31 per gallon, respectively; and
◦ the average volumes of gasoline and diesel sold increased by 1.1 million and 1.7 million gallons, respectively.
The following chart shows a summary of the average prices per gallon of gasoline and diesel purchased in our West Texas operations for the three months ended March 31, 2025 and 2024. Refer to the Refined Products Volume - Gallons chart above for a summary of volumes impacting our West Texas operations.
Operating Expenses
Q1 2025 vs. Q1 2024
Operating expenses for the wholesale marketing and terminalling segment were flat, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024.
37 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
EBITDA
Q1 2025 vs. Q1 2024
EBITDA decreased by $12.0 million, or 47.6%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by the following:
• lower revenue related to sales-type lease accounting; and
• a $0.51 decline in wholesale margins.
38 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
Storage and Transportation Segment
The following tables and discussion present the results of operations and certain operating statistics of the storage and transportation segment for the three months ended March 31, 2025 and 2024:
Storage and Transportation
Three Months Ended March 31,
2025 2024
Net revenues $ 24,628 $ 36,922
Cost of materials and other $ 15,027 $ 13,893
Operating expenses (excluding depreciation and amortization) $ 5,161 $ 5,021
Segment EBITDA $ 4,414 $ 18,127
Operation comparison of the three months ended March 31, 2025 compared to the three months ended March 31, 2024
Net Revenues
Q1 2025 vs. Q1 2024
Net revenues for the storage and transportation segment decreased by $12.3 million, or 33.3%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to recording certain storage fees as interest income under sales-type lease accounting that were previously recorded as revenue in the prior year period.
Cost of Materials and Other
Q1 2025 vs. Q1 2024
Cost of materials and other for the storage and transportation segment increased by $1.1 million, or 8.2%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024.
Operating Expenses
Q1 2025 vs. Q1 2024
Operating expenses for the storage and transportation segment increased by $0.1 million, or 2.8%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024.
EBITDA
Q1 2025 vs. Q1 2024
EBITDA decreased by $13.7 million, or 75.6%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to a decrease in revenue related to sales-type lease accounting.
39 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
Investments in Pipeline Joint Ventures Segment
The Investments in Pipeline Joint Ventures segment relates to strategic Joint Venture investments, accounted for as equity method investments, to support the Delek Holdings operations in terms of offering connection to takeaway pipelines, alternative crude supply sources and flow of high quality crude oil to the Delek Holdings refining system. As a result, Delek Holdings is a major shipper and customer on certain of the Joint Venture pipelines, with minimum volume commitment ("MVC") agreements, which cushion the Joint Venture entities during periods of low activity. The other Joint Venture owners are usually major shippers on the pipelines resulting in a majority of the revenue of the Joint Venture entities coming from MVC agreements with related entities.
Investments in pipeline joint ventures segment include the Partnership's joint ventures investments described in Note 8 of our condensed consolidated financial statements in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Refer to Consolidated Results of Operations above for details and discussion of the investments in pipeline joint ventures segment for the three months ended March 31, 2025.
Liquidity and Capital Resources
Sources of Capital
We consider the following when assessing our liquidity and capital resources:
(i) cash generated from operations;
(iv) potential issuance of additional debt securities; and
(ii) borrowings under our revolving credit facility;
(v) potential sale of assets.
(iii) potential issuance of additional equity;
At March 31, 2025, our total liquidity amounted to $447.0 million comprised of $444.9 million in unused credit commitments under our third-party revolving credit facility (as discussed in Note 6 of our condensed consolidated financial statements in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q), and $2.1 million in cash and cash equivalents. Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay quarterly cash distributions and operational capital expenditures, and we expect the same to continue in the foreseeable future. Other funding sources, including the issuance of additional debt securities, have been utilized to fund growth capital projects such as dropdowns and other acquisitions. In addition, we have historically been able to source funding at rates that reflect market conditions, our financial position and our credit ratings. We continue to monitor market conditions, our financial position and our credit ratings and expect future funding sources to be at rates that are sustainable and profitable for the Partnership. However, there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available on terms that are acceptable to us. We believe we have sufficient financial resources from the above sources to meet our funding requirements in the next 12 months, including working capital requirements, quarterly cash distributions and capital expenditures. Nevertheless, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay distributions will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including crude oil prices, some of which are beyond our control. We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to a significant decline in crude oil prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our debt agreements.
Cash Distributions
On April 28, 2025, the board of directors of our general partner declared a distribution of $1.110 per common unit (the "Distribution"), which equates to an estimated amount of approximately $59.3 million per quarter, or approximately $237.2 million per year, based on the number of common units outstanding as of March 31, 2025. The Distribution will be paid on May 15, 2025 to common unitholders of record on May 8, 2025 and represents a 3.7% increase over the first quarter 2024 distribution. This increase in the distribution is consistent with our intent to maintain an attractive distribution growth profile over the long term. Although our Partnership Agreement requires that we distribute all of our available cash each quarter, we do not otherwise have a legal obligation to distribute any particular amount per common unit.
40 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
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, 2024 $1.070 $50,521
June 30, 2024 $1.090 $51,263
September 30, 2024 $1.100 $56,613
December 31, 2024 $1.105 $59,302
March 31, 2025 $1.110 $59,311
Unit Repurchase
On February 24, 2025, the Partnership and Delek Holdings entered into a Common Unit Purchase Agreement whereby the Partnership may repurchase common units from time to time from Delek Holdings in one or more transactions for an aggregate purchase price of up to $150.0 million through December 31, 2026 (each such repurchase, a “Repurchase”).The Partnership may fund Repurchases using cash on hand or borrowings under its existing credit facility, subject to compliance with applicable covenants. During the three months ended March 31, 2025, 243,075 common units were repurchased from Delek Holdings and cancelled at the time of the transaction for a total of $10.0 million. No common units were repurchased for the three months ended March 31, 2024. As of March 31, 2025, there was $140.0 million of authorization remaining under the Common Unit Repurchase Agreement.
Cash Flows
The following table sets forth a summary of our consolidated cash flows for the three months ended March 31, 2025 and 2024 (in thousands):
Three Months Ended March 31,
2025 2024
Net cash provided by operating activities $ 31,550 $ 43,858
Net cash used in investing activities (234,767) (9,861)
Net cash provided by (used in) financing activities 199,940 (28,080)
Net (decrease) increase in cash and cash equivalents $ (3,277) $ 5,917
Operating Activities
Net cash provided by operating activities decreased by $12.3 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The cash receipts from customer activities increased by $43.7 million and cash payments to suppliers and for allocations to Delek Holdings for salaries decreased by $27.7 million. In addition, cash dividends received from equity method investments decreased by $2.2 million and cash paid for debt interest increased by $26.1 million.
Investing Activities
Net cash used in investing activities increased by $224.9 million during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to Gravity Acquisition for $181.2 million. Additionally, purchases of property, plant and equipment and intangibles increased $44.2 million and $3.8 million, respectively, primarily associated with growth projects in our gathering and processing segment. Partially offsetting these increases was an increase in proceeds from sale of property, plant and equipment predominantly due to $4.3 million of condemnation proceeds received from eminent domain proceedings in Texas in the current period.
Financing Activities
Net cash provided by financing activities increased by $228.0 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This increase was primarily driven by increase in net proceeds from our revolving credit facility which increased by $485.0 million. Additionally contributing to this increase was a $6.2 million decrease in payments on other financing arrangements, and a decrease in deferred financing costs paid of $10.9 million associated with the 2029 Note issuances in prior year.
Partially offsetting these increases was a decrease of $132.3 million due to proceeds received from the equity issuances in October and March 2024; a decrease in net proceeds from term loans of $118.8 million due to issuance of 2029 Notes net of the extinguishment of 2025 Notes and term facility in the prior year, an increase in distributions paid of $13.1 million and a decrease of $10.0 million due to unit repurchases from Delek Holdings in the current period.
41 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
Debt Overview
As of March 31, 2025, we had total indebtedness of $2,155.1 million. The increase of $269.7 million in our long-term debt balance compared to the balance at December 31, 2024 resulted from additional borrowings under our revolving credit facility during the three months ended March 31, 2025. As of March 31, 2025, our total indebtedness consisted of:
• An aggregate principal amount of $705.1 million under the DKL Revolving Facility, due on October 13, 2027, with an average borrowing rate of 7.19%.
• An aggregate principal amount of $400.0 million, under the 2028 Notes (7.125% senior notes), due in 2028, with an effective interest rate of 7.38%.
• An aggregate principal amount of $1,050.0 million, under the 2029 Notes (8.625% senior notes), due in 2029, with an effective interest rate of 8.81%.
We believe we were in compliance with the covenants in all debt facilities as of March 31, 2025. See Note 6 to our condensed consolidated financial statements for a complete discussion of our third-party indebtedness.
Agreements Governing Certain Indebtedness of Delek Holdings
Delek Holdings' level of indebtedness, the terms of its borrowings and any future credit ratings could adversely affect our ability to grow our business, our ability to make cash distributions to our unitholders and our credit profile. Our current and future credit ratings may also be affected by Delek Holdings' level of indebtedness, financial performance and credit ratings.
Capital Spending
A key component of our long-term strategy is our capital expenditure program, which includes strategic consideration and planning for the timing and extent of regulatory maintenance, sustaining maintenance, and growth capital projects. These categories are described below:
• Regulatory maintenance projects in the gathering and processing segment are those expenditures expected to be spent on certain of our pipelines to maintain their operational integrity pursuant to applicable environmental and other regulatory requirements. Regulatory projects in the wholesale marketing and terminalling segment relates to scheduled maintenance and improvements on our terminalling tanks and racks at certain of our terminals in order to maintain environmental and other regulatory compliance. These expenditures have historically been and will continue to be financed through cash generated from operations.
• Sustaining capital expenditures represent capitalizable 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 sustaining capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines, tanks and terminals, to maintain equipment reliability, integrity and safety and to maintain compliance with environmental laws and regulations. Delek Holdings has agreed to reimburse us with respect to certain assets it has transferred to us pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements). When not provided for under reimbursement agreements, such activities are generally funded by cash generated from operations.
• Growth projects include those projects that do not fall into one of the two categories above, and could include committed expansion projects under contracts with customers as well as other incremental growth projects, but are generally expected to produce incremental cash flows in accordance with our internal return on invested capital policy. Depending on the magnitude, funding for such projects may include cash generated from operations, borrowings under existing credit facilities, or issuances of additional debt or equity securities.
42 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following table summarizes our actual capital expenditures, including any material capital expenditure payments made or forecasted to be made in advance of receipt of goods and materials, for the three months ended March 31, 2025:
(in thousands) Full Year 2025 Forecast Three Months Ended March 31, 2025
Gathering and Processing
Regulatory $ — $ —
Sustaining 2,715 13
Growth 209,300 71,298
Gathering and Processing Segment Total $ 212,015 $ 71,311
Wholesale Marketing and Terminalling
Regulatory $ 6,958 $ 11
Sustaining 3,022 79
Growth 6,800 —
Wholesale Marketing and Terminalling Segment Total $ 16,780 $ 90
Storage and Transportation
Regulatory $ — $ 221
Sustaining 6,515 321
Growth — —
Storage and Transportation Segment Total $ 6,515 $ 542
Total Capital Spending $ 235,310 $ 71,943
The amount of our capital expenditure forecast is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects. For example, we may experience increases in the cost of and/or timing to obtain necessary equipment required for our continued compliance with government regulations or to complete improvement projects. Additionally, the scope and cost of employee or contractor labor expense related to installation of that equipment could increase from our projections.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements through the date of the filing of this Quarterly Report on Form 10-Q.
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Quantitative and Qualitative Disclosures about Market Risk