Delek Logistics Partners ((DKL)) has held its Q2 earnings call. Read on for the main highlights of the call.

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Delek Logistics Partners delivered a broadly upbeat earnings call, underscoring a record quarter and solid operational momentum despite a few pockets of weakness. Management highlighted strong volume growth, disciplined investment in sour gas infrastructure and a long track record of rising distributions. They acknowledged near-term leverage and segment softness, but expressed confidence that robust execution and new projects will drive future upside.

Record Quarterly Adjusted EBITDA and Cash Generation

Delek Logistics reported a quarterly record adjusted EBITDA of about $144 million for Q2 2026, up 13.4% year over year from $127 million. Distributable cash flow of roughly $81 million translated into a coverage ratio of around 1.33 times, and management reaffirmed full-year adjusted EBITDA guidance in the $520 million to $560 million range.

Gathering & Processing Segment Drives Earnings Outperformance

The Gathering & Processing segment was the standout performer, generating adjusted EBITDA of $104 million versus $78 million a year earlier. The 33.3% jump was mainly fueled by higher utilization at the Libby gas complex and stronger realized margins on Permian crude, underscoring the value of their integrated midstream footprint.

Crude, Water and Gas Volumes Ramp Materially Quarter on Quarter

Operationally, volumes surged across the board, with Delaware crude gathering hitting a record above 157,000 barrels per day, up about 21.7% from Q1. Produced water volumes climbed to more than 687,000 barrels per day and gas volumes rose to over 80 million cubic feet per day, posting quarter-on-quarter increases north of 23% and 25% respectively.

Libby Sour Gas Solution Nears Completion

Management emphasized strong progress on the Libby sour gas solution, with integrated sour gas processing, treating and in-handling nearing completion. The first AGI well has been drilled, Libby 1 and Libby 2 plants are running well, and the company expects a step change in gas utilization as the sour-gas capabilities come online later in 2026.

Disciplined Growth CapEx with Attractive Return Profile

Growth spending remained disciplined, with Q2 capital expenditures of about $61 million, roughly $51 million of which was growth capex. For 2026, the $180 million to $190 million growth program is expected to generate up to $75 million of run-rate EBITDA, including about $15 million this year and roughly $60 million in 2027, implying a compelling multiple on invested capital.

Balance Sheet Management and Ample Liquidity

On the financing front, Delek Logistics issued an $800 million senior note due 2034, using proceeds to retire 2028 notes and partially redeem 2029 notes, lowering interest costs and extending maturities. Liquidity remained strong at approximately $1.1 billion, giving the partnership room to fund growth while navigating market cycles.

Distribution Increase and Rising Third-Party Mix

The board approved the 54th consecutive quarterly distribution increase, lifting the payout to $1.135 per unit and reinforcing the income story for unitholders. Management also noted that on a pro forma basis, about 80% of 2026 run-rate EBITDA is expected to come from third-party customers, further increasing economic separation from the sponsor.

Pipeline Joint Ventures Add to Earnings Growth

Pipeline joint venture investments continued to contribute meaningfully, delivering $21 million of EBITDA in Q2 versus $17 million in the prior year. The 23.5% increase was led by strong performance from the Wink-to-Webster joint venture, highlighting the benefits of exposure to large-scale Permian takeaway infrastructure.

Wholesale Marketing & Terminalling Softness Weighs on Results

Not all segments moved higher, as Wholesale Marketing & Terminalling adjusted EBITDA fell to roughly $13 million from $23 million a year ago. The nearly 43.5% decline was largely tied to the effects of a 2024 amend-and-extend agreement with Delek, signaling that legacy contract changes can still pressure near-term earnings.

Elevated Leverage Remains a Watch Item

Leverage finished the quarter at about 4.23 times, up modestly from Q1 and above the long-term target of 3.5 times. Management plans to operate around 4 times as new investments begin contributing EBITDA, but the higher ratio remains an area investors will monitor until growth fully feeds through to cash flows.

Storage & Transportation Experiences Modest Decline

Storage & Transportation posted adjusted EBITDA of $16 million, slightly lower than $17 million in the prior period. The modest 5.9% decline was primarily attributed to a related-party transaction executed in January 2026, suggesting the softness was deal-specific rather than a broader operational issue.

Exposure to Commodity and Regional Market Dynamics

Management reiterated that performance and upside are tied to commodity price trends and regional takeaway dynamics, including developments in Middle East markets and Waha basis. Sustaining volume-driven growth will depend on continued producer activity and favorable price and infrastructure conditions, leaving results sensitive to broader market and regional risks.

Forward-Looking Guidance and Growth Outlook

Looking ahead, the company reaffirmed its 2026 adjusted EBITDA guidance of $520 million to $560 million, backed by Q2’s record performance and solid DCF coverage. Management expects a meaningful uptick in gas utilization once the Libby sour-gas solution is online, sees up to $75 million of run-rate EBITDA from this year’s growth capital, and aims to manage leverage around 4 times while maintaining roughly $1.1 billion of liquidity.

Delek Logistics’ earnings call painted a picture of a midstream operator leaning into growth while carefully managing risk and balance sheet flexibility. Record EBITDA, strong volume trends and visible project-driven upside offset segment-specific pressures and elevated leverage, leaving investors with a constructive view on the partnership’s income and growth potential over the next several years.