Delek Logistics Partners Third Quarter 2026 Earnings Call - DELEK LOGISTICS PARTNERS LP

Financial Performance:

• Reported adjusted EBITDA of $143 million for Q3 2026, consistent with the prior year period.
• Distributable cash flow (DCF) was approximately $73 million, with a DCF coverage ratio held steady at 1.11x.
• Ended the quarter with a leverage ratio of 3.85x, the lowest level of the year.
• Cash liquidity stood at approximately $1.3 billion at quarter-end.
• Completed a primary follow-on equity offering raising ~$220 million in net proceeds.
• Announced the 55th consecutive quarterly distribution increase, raising the payout to $1.14 per unit.

Guidance and Future Outlook:

• Raised full-year 2026 adjusted EBITDA guidance to a range of $530–$560 million.
• Confirmed 2026 gross capital program of $180–$190 million is expected to generate up to $50 million in run-rate EBITDA in 2026 and an additional $60 million in 2027.
• Pro forma expectations for 2026 indicate approximately 80% of run-rate EBITDA will derive from third-party customers.
• Projecting a substantial volume ramp in Q4 2026 and early 2027 as new sour gas infrastructure comes fully online.

Business Segments and Product Lines:

• Gas: Successfully completed construction of the first sour gas compressor station and AGI well at the Libby complex; currently in commissioning with expected startup in coming weeks to serve Delaware Basin producers.
• Crude: DPG and DDG businesses showed strong performance and sustained production; noted a slight volume decrease vs. Q2 due to well connection timing, with growth expected in the Delaware Basin.
• Water: Experienced a volume dip driven by production declines and well timing, but anticipates a reversal by year-end with strong growth opportunities in both Midland and Delaware basins.
• Three-Stream Platform: Highlighted as a key differentiator providing integrated crude, gas, and water services in the Permian Basin.
• Wholesale Marketing & Terminaling: Adjusted EBITDA of $21 million, in line with prior year.
• Storage & Transportation: Adjusted EBITDA of $20 million, up slightly from $19 million in the prior year period.

Market and Competitive Landscape:

• Permian rig activity is near yearly highs, and producer acreage/lease activity is heightened, particularly in the northern Delaware Basin.
• Waha gas prices have turned firmly positive, stabilizing local markets compared to negative pricing in H1 2026.
• Elevated crude and NGL prices, driven by Middle East conflict, support sustained upstream activity.
• Management views the current valuation environment as favorable for selling assets but prioritizes funding organic growth projects.

Risks and Challenges:

• Production decline and well connection timing have temporarily impacted crude and water volumes.
• Dependence on the successful ramp-up of the new sour gas solution to realize projected EBITDA growth.
• Management noted the risk of actual results differing from forward-looking statements regarding capital projects and market conditions.

Management Commentary and Tone:

• Tone is highly confident, emphasizing "exceptional" team performance and strong operational execution.
• Management expressed pride in the "extraordinary achievement" of 55 consecutive distribution increases.
• Focus remains on financial discipline, maintaining leverage/coverage targets, and delivering sustainable long-term value.
• CEO Mark Hobbs noted energizing momentum since joining, citing the company's unique positioning in the basin.

Analyst Questions and Answers:

• Volume Ramp & Future Investment: Analyst Doug Irwin (Citi) asked about the sour gas volume ramp and future expansion timing. Management confirmed a "steady ramp" in Q3, expecting a "substantial jump" in Q4 as the integrated solution commissions, with future investment decisions pending customer production data.
• Capital Allocation & M&A: Regarding the equity offering and M&A appetite, management clarified that the ~$220M raise was primarily to strengthen the balance sheet, fund organic projects, and maintain leverage ratios. They indicated a lack of immediate M&A interest due to high asset valuations in the seller market, preferring to execute on high-return organic projects (citing $185M investment yielding ~$75M EBITDA).

Other Key Points:

• Delic's ownership stake in Delic Logistics decreased to approximately 58% following the August equity offering.
• Second-quarter refinancing of 2028 and 2029 senior notes, combined with the equity offering, extended the maturity profile and improved capital structure.
• The new sour gas solution is described as a unique capability that unlocks growth for producers and addresses a specific market need for treating sour gas in the Delaware Basin.