Delek Logistics Partners (DKL 1.79%), a midstream energy company specializing in gathering, transporting, and processing crude oil, natural gas, and water in the Permian Basin, released its second quarter 2025 earnings on August 6, 2025. The main headline from this release was a solid GAAP earnings per share of $0.83, eclipsing consensus estimates by a penny on a GAAP basis, though GAAP revenue fell to $246.4 million, missing GAAP revenue expectations by $6.9 million. Adjusted EBITDA surged to $120.9 million, benefiting from recent acquisitions and facility expansions. The company maintained its streak of quarterly distribution increases, marking its 50th consecutive increase, but the period did reveal ongoing reliance on affiliate revenues and a high leverage ratio. Overall, the quarter showed strong operational execution on infrastructure and growth projects, but revenue softness and continued high debt levels stand out as areas for attention.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS | $0.83 | $0.82 | $0.87 | (4.6%) |
| Revenue | $246.4 million | $253.3 million | $264.6 million | (6.9%) |
| Adjusted EBITDA | $120.9 million | $102.4 million | 18.1% | |
| Distributable Cash Flow, as adjusted | $72.5 million | $67.8 million | 7.0% | |
| Distribution per Unit | $1.115 | $1.09 | 2.3% |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
About the Business and Recent Focus
Delek Logistics Partners operates as a master limited partnership, with pipeline networks and midstream infrastructure serving oil, gas, and water producers in the Permian Basin and related regions. Its core business revolves around gathering, processing, storing, transporting, and marketing hydrocarbons and water to both affiliate and third-party customers.
Recently, the company has focused on expanding its asset footprint in the Delaware and Midland Basins, investing in new gas processing plants and integrating water midstream systems. Its key priorities include executing on major infrastructure projects, such as the Libby 2 gas processing plant, and lessening its dependency on affiliate revenues from Delek Holdings. Success factors are tied to maximizing throughput and cash flow from these assets, maintaining steady distribution growth, and tightening the connection to third-party customers.
Quarter in Review: Progress and Performance
One highlight of the quarter was the completion of the Libby 2 gas processing plant in Lea County, New Mexico. This gas processing facility boosts the company's ability to handle additional production from customers, offering both standard gas processing and specialized sour gas treatment. Management noted this as "a much needed processing capacity expansion" suggesting strong regional demand and a competitive edge in compliance-oriented services.
Adjusted EBITDA soared to a record $120.9 million, marking an 18.1% increase compared to Q2 2024. Momentum came from recent acquisitions, such as H2O Midstream and Gravity, which integrated water gathering and recycling capabilities with crude oil infrastructure—allowing multi-stream service offerings to customers. Specifically, the Gathering and Processing segment grew its Adjusted EBITDA to $78.0 million, up 42.6% compared to Q2 2024, as the business absorbed contributions from these new assets and increased joint venture pipeline income.
The company continued to raise its quarterly cash distribution, reaching $1.115 per unit—its 50th consecutive quarterly distribution increase, up 2.3% from the prior year. Distributable cash flow, as adjusted, rose to $72.5 million. However, the distributable cash flow coverage ratio, as adjusted, slipped to 1.22x from 1.32x, reflecting heavier capital outlays and increased unit count from acquisitions. The increase in payout reflects management's stated policy to maintain steady, incremental distribution growth.
Not all segments advanced. Affiliate revenues, or sales to Delek Holdings, dropped to $114.1 million from $156.8 million in Q2 2024 (GAAP), reflecting efforts to increase third-party contribution (to approximately 80% on a pro forma basis as of Q1 2025), but also exposing risk from declining affiliate activity. The Wholesale Marketing and Terminalling segment's Adjusted EBITDA dropped to $23.3 million from $30.2 million in Q2 2024, largely because the Big Spring refinery marketing agreement shifted to Delek Holdings, impacting both sales and profits in the segment.
Financial Details and Business Mix
The revenue miss this quarter was minor but stood out, given that management delivered on other operational and profitability metrics. (GAAP revenue was $246.35 million.) Third-party revenues rose sharply by 22.7% compared to Q2 2024, reaching $132.3 million, outpacing a notable fallback in affiliate revenues. This shift towards more externally generated income is a key element in reducing the company's dependence on its former parent, though Delek Holdings still represented about 46.3% of total revenue for FY2022.
In terms of operating metrics, pipeline and gathering throughput in the Midland area remained steady at about 207,000 barrels per day, but the Plains Connection System saw a 24.3% decrease in throughput compared to Q2 2024. Natural gas gathering and processing in the Delaware Basin dropped 20% compared to Q2 2024, but the water gathering/recycling platform held volumes flat. Capital expenditures reached $119.2 million (up sharply from $10.2 million in Q2 2024), invested mainly in growth projects, including the Libby 2 plant and expanding water handling systems.
Debt and liquidity moved higher. Total debt (GAAP) increased to $2.2 billion as of June 30, 2025 from $1.9 billion at December 31, 2024 following a successful $700 million bond issue. Liquidity now exceeds $1 billion, but the leverage ratio stands at approximately 4.32x as of June 30, 2025. The company’s cash position was $1.4 million, while capital investments leave little room for missteps if growth slows or financing costs rise.
In accounting, Delek Logistics adopted sales-type lease accounting for certain contracts with Delek Holdings during Q3 2024. This change reallocates some revenue into interest income under sales-type lease accounting, reducing disclosed sales and complicating year-to-year comparisons. Management emphasized this shift in the filing, noting impacts on standard revenue and earnings metrics versus traditional periods.
Looking Ahead: Guidance and Watchpoints
The company reaffirmed its guidance for FY2025 Adjusted EBITDA at $480 million to $520 million, signaling confidence in full-year execution. Management cited accelerated capital expenditures in the first half of 2025 on infrastructure expansion, promising a slower pace for the rest of the year.
With continued ambitions for distribution increases, management stated, "we expect to continue to increase our distribution in the future." Investors will likely focus on the pace of third-party revenue growth, leverage trends, and the integration of new assets like Libby 2.
The quarterly dividend was raised 2.3% to $1.115 per unit.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
