Operator: Hello, everyone. Thank you for joining us, and welcome to the Delek Logistics Partners Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Robert Wright, EVP and Chief Financial Officer. Robert, please go ahead.
Robert Wright: Good morning, and welcome to the Delek Logistics Partners Second Quarter Earnings Conference Call. Participants joining me on today's call will include Avigal Soreq, President and Chairman; Mark Hobbs, EVP; as well as other members of our management team. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call involve risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal?
Avigal Soreq: Thank you, Robert. Today, DKL reported $144 million in adjusted EBITDA in the second quarter, reaffirming full year EBITDA guidance of $520 million to $560 million. DKL's strong results are a reminder of our advanced position as a premier full-service provider of crude, gas and water in the Permian Basin. As of July 1, Mark moved from his CFO position at Delek to lead role at Delek Logistics, and we recently brought on Kris Kindrick as our new SVP of Commercial. I'm highly confident that Mark, Kris and the rest of the Delek Logistics team will deliver the next chapter of growth for DKL. All 3 of our segments are doing well, and I will provide more detail on each one of these segments. Starting with gas, we are nearing the completion of our integrated sour gas processing, treating and in-handling solution of Libby gas complex. The comprehensive system will serve our customer by further supporting long-term oil and gas production growth in the Delaware Basin. Moving to crude. Both DPG and DGG continue to see strong performance with DGG crude gathering delivering a record quarter. We look forward to further optimizing and growing the system. Our water business continued to perform well, and we are continuing to explore growth opportunities in this space. Our combined gas, crude and water offering in the Permian Basin has improved our competitive position and established a platform for future growth. We will continue to pursue growth opportunities in a disciplined manner while maintaining a focus on leverage and coverage. We also intend to remain a good steward of our stakeholders' capital. Our Board of Directors has approved our 54th consecutive quarterly distribution increase, raising the distribution to $1.135 per unit. This is an extraordinary milestone, and it reflects the exceptional work of our team and the financial discipline that has brought us to this point. With the foundation we have built and the opportunities ahead, we are confident in our ability to continue delivering sustainable growth and long-term value for our unitholders. I will now turn it over to Mark, who will provide additional detail on our operations.
Mark Hobbs: Thank you, Avigal. I'm excited about the opportunity to join Delek Logistics and to work with the exceptional team that we have at DKL. I see tremendous growth potential for Delek Logistics as we are uniquely positioned to meet our customers' increasing needs for midstream services across crude, gas and water in the Permian Basin. We continue to see heightened activity by producers in securing undeveloped acreage and future drilling locations in the Northern Delaware in Lea and Eddy counties. Higher crude prices as a result of the ongoing conflict in the Middle East, combined with strengthening Waha prices as additional takeaway capacity comes online by early next year, should drive increased demand for our 3-stream service platform strategically centered in Lea County. As Avigal mentioned, our competitive position as a 3-stream provider sets us up well for future growth. Our strong and growing third-party business continues to increase our economic separation from our sponsor, DK. In 2026, on a pro forma basis, we continue to expect approximately 80% of our run rate EBITDA will come from third parties. Turning to our business. We operated well in the second quarter, delivering safe and reliable performance for our customers. We continue to see an increasing need for incremental sour gas gathering and processing capabilities in New Mexico to support our customers' growth plans. During the second quarter, we made great progress advancing our industry-leading sour gas solution in the Delaware Basin. With the increased capacity at our Libby processing complex and the completion of our first AGI well, we are focusing our efforts on building out our sour gas gathering infrastructure, including compressor stations. We are aligned with our customers, and our sour solution will unlock future growth for producers in the region and demand for our services. We achieved higher volumes in the second quarter in our gas business versus the first quarter and are expecting to see a step change in our utilization as our sour gas solution comes online later this year. We continue to evaluate options for future investments that will support further expansions of the Libby complex based on anticipated customer needs for additional sour gas processing in the region. Moving to crude. Our Delaware crude gathering business achieved record volumes in the second quarter. Our crude gathering business in both the Delaware and the Midland are well positioned, and our combined crude and water offering continues to yield great results. In our water business, we are seeing strong operating performance, driven by the successful integration of the H2O and Gravity acquisitions in late 2024 and early last year, respectively. Produced water handling and disposal continues to be a critical and increasing need of our customers. Our scale and capabilities across the Delaware and Midland Basins present us with unique opportunities to drive future growth in our water business. And I look forward to updating the market as we advance these solutions. With that, I will pass it on to Robert.
Robert Wright: Thank you, Mark. As Avigal and Mark highlighted, we are pleased to report another exceptionally strong quarter for the partnership with adjusted EBITDA reaching a quarterly record of approximately $144 million. Importantly, we are delivering this growth while staying focused and disciplined on our long-term leverage and coverage targets. We ended the quarter with a leverage ratio of 4.23x, up modestly from the first quarter. This uptick reflects capital investments we are making that are expected to generate up to $75 million of run rate EBITDA, a highly attractive return on our $180 million to $190 million growth capital program for the year. We exited the quarter with a strong balance sheet. During the quarter, we proactively refinanced our high-yield capital structure to lower our cost of debt, issuing a new $800 million senior note due 2034, fully retiring our 2028 notes and partially redeeming our 2029 notes. Together, these transactions reduced annual interest costs and extend our maturity profile. Liquidity remains robust at approximately $1.1 billion. Turning to our results. Adjusted EBITDA for the quarter was approximately $144 million compared to $127 million in the same period last year. Distributable cash flow as adjusted came in at approximately $81 million, and our DCF coverage ratio held steady at approximately 1.33x. We are also proud to announce our 54th consecutive distribution increase, which brings the quarterly distribution to $1.135 per unit. As to our segment results, starting with Gathering and Processing, adjusted EBITDA for the second quarter was $104 million, up from $78 million in the second quarter of 2025. The improvement was driven primarily by higher utilization at the Libby gas complex, along with stronger realized margins in our Permian Basin crude business. In Wholesale Marketing and Terminalling, adjusted EBITDA was approximately $13 million versus $23 million a year ago, with the decline largely attributable to the effects of the 2024 amend and extend agreement with Delek. Storage and Transportation delivered adjusted EBITDA of $16 million compared with $17 million in the prior period. The modest decrease primarily reflects the January 2026 related party transaction. And finally, our Investments in Pipeline Joint Ventures segment contributed $21 million this quarter, up from $17 million in the second quarter of 2025, led by continued strong results from the Wink-to-Webster joint venture. Moving now to capital expenditures. Total capital spending for the second quarter was approximately $61 million, of which $51 million was for growth capital. That spend was primarily directed towards the drilling of our first AGI well and continued build-out of new sour gas gathering infrastructure. The balance funded other growth initiatives, including work to advance reliable power solutions for the Libby gas complex. Looking ahead to the remainder of 2026, as Avigal noted, our confidence in the earnings trajectory of the partnership remain intact, and we are reaffirming our full year 2026 adjusted EBITDA guidance range of $520 million to $560 million. With that, we will now open the call for questions.
Operator: Your first question is from the line of Doug Irwin.
Douglas Irwin: I just want to start with the Gathering and Processing segment. You called out some stronger margins on Gathering and Processing on the quarter. Just wondering if you could help unpack what drove that strength a little bit more here. Just curious how much of that is tied to the commodity environment and just generally how durable you see that margin strength being from here?
Avigal Soreq: Yes. So we are very confident about the results we see in the second quarter. Obviously, we are starting the year very well. We are very confident about the guidance we are seeing. As I said in my prepared remarks, both DPG and DGG performed very well. I think the DGG had a record number around it. We are very happy about the process that we are seeing on the gas plant that increased quarter over quarter over quarter. As we said in the prepared remarks, we are very close to completing the gas treating solution on the sour side that will take us to, as Mark said, to a step change, and I'll let Mark to complete.
Mark Hobbs: Yes. Thanks, Avigal. Yes, Doug, I'll just touch on the business performance. Across the board, we're performing well in the second quarter and continue to do so. We have great infrastructure, which, as you know, is strategically positioned in the right location, and we continue to see a lot of activity amongst our customers in the Northern Delaware with close proximity to our assets. As Avigal mentioned, our Delaware crude business had a record volume in Q2 at over 157,000 barrels per day, up from around 129,000 in Q1. Our produced water volumes in both the Midland and Delaware increased as well to over 687,000 barrels a day, up from 557,000 in Q1. As Avigal mentioned, our gas volumes continue to ramp. We were over 80 million cubic feet a day in Q2, up from around 64 million in Q1, and we continue to see that trend continue in Q3. Both Libby 1 and Libby 2 plants are running well. The volumes are increasing. And as we said in our prepared remarks, we're nearing the completion of our full sour gas solution build-out, and we do expect to see a step change in our gas volumes through the rest of the year.
Douglas Irwin: Got it. That's helpful. And maybe tying into that a little bit as it relates to guidance for the rest of the year. If I were to just look at your second quarter results and extend that through the year, you're already kind of pointing towards the high end of your guidance range based on those numbers. And then you kind of pointed to an expected ramp of Libby. So just kind of curious how you're thinking about potential upside here, is kind of the midpoint of guidance potentially pretty conservative here and just kind of how you're thinking about what could potentially drive either end of the range?
Avigal Soreq: Yes. And you are very -- you're correct. The math that you're doing is absolutely right, and I will give you some more context around that. We are very happy about the results we have. We are very happy about the business we have, each one of them, the strategy that we put together working extremely well, and we are very happy about the management team that we have over there. We're going to follow the same sequence that we had in the last year, that Q4 -- on Q4 call, we are submitting the guidance. And if we see a way to upgrade the guidance, we're going to -- we did it last year in Q3. So stay tight and more news to come.
Operator: Your next question is from the line of Gabe Moreen with Mizuho.
Gabriel Moreen: Quick question, I guess, in terms of the interplay on commodity prices. I just wonder if I could maybe put a finer point on things. Waha has clearly traded better. Crude oil prices have come up, although pulled back a bit here. So I'm just wondering your latest expectations around customer conversations and what you're seeing heading into 2027, whether you're seeing some rigs potentially being added back to some of your acreage relative to your expectations. I'm just curious. And then also whether -- again, I think you mentioned last quarter, Waha shuts didn't really impact you, but whether that's having any impact on volumes with pricing being better here?
Avigal Soreq: Yes, absolutely. So you touched a very good point. Obviously, we are in close touch with our customer on a daily, weekly basis, and they are very excited about their business, which make us very excited about our business. I've seen your note earlier about the rigs in the area and the wells that we have in our acreage, and that's very good to see how detailed it become the discussion. So we are very optimistic about where we are. We have a prime location. We have a very good producer in our acreage. You've seen the statistics about the Permian Basin as a general going from the beginning of the event to now by around 20 rigs. We see an increased forecast in our acreage as well. So we are very optimistic about where we are and who do we do business with. So stay tuned and more to come. Mohit, do you want to talk about the Waha?
Mohit Bhardwaj: Yes. Yes. I think, Avigal, you covered it very well. And Gabe, you and I have discussed this previously as well. So there are 2 positive effects happening at the same time. First is there is some strength in the commodity prices. And based on that, we have seen incremental production. And because of that, we've seen forecast for not only second half of 2026, but 2027 rise. And second is this development around Waha. Waha prices have strengthened. This is a minor positive for us just from a results standpoint, but it's a much bigger positive from a volume standpoint, and we should see that reflected. Beyond that, we have talked about in the past that we are working on $185 million of growth CapEx, which will yield $75 million in EBITDA, $15 million in '26 and $60 million in 2027. So our setup on a go-forward basis is very, very strong. So we are very excited about the things that we are seeing.
Gabriel Moreen: Excellent. And then maybe if I could just follow up. Remind me on your contracting behind your water assets to what degree things are volumetric versus take-or-pay? And is there any change or shift in kind of your contracting strategy going forward?
Mohit Bhardwaj: Yes. Gabe, I can answer that. So we don't really share our contracted strategy, but we're very excited about our produced water gathering business, as Mark alluded in his prepared remarks and also as an answer to the previous question, we have scale in the business. We are seeing a 3-stream service, gas, water and crude really reaping results. And even in the Midland, where we just have 2 streams, crude and water, we are seeing incremental positive results. So we are very excited about the water business that we have. We are building upon it, and we'll share more details around this when we are ready.
Operator: Your final question is from the line of Ivan Scotto with UBS.
Ivan Scotto: Congrats on the strong quarter. It's good to hear about the integrated completion on the Libby gas complex. But just wondering how you're thinking about capitalizing on sour gas treating and AGI demand over the long term, including any possible expansion. So at Libby, what would need to happen? Or what would you need to see in the market to make you comfortable kind of commissioning that?
Avigal Soreq: Yes. Obviously, the king here is the rock. And we're seeing the rock going a bit sour. And the second part of that is our ability is our drilling of AGI wells and building a sour complex. So the combination of that make us very uniquely positioned that we have 3 things coming together, our location, the sour gas that we see coming out of the ground and our infrastructure all coming together very nicely that give us competitive advantage, and we are very excited about that. And I will let Mark that is very close to it, share some of his thoughts.
Mark Hobbs: Yes. Thanks, Avigal. Look, as we've mentioned in the past, we are seeing increasingly more sour gas production from our customers moving from sweet to sour. And as you rightfully said, we're seeing that trend continue. And we've added a lot of capacity in preparation to handle that. As you know, adding Libby 2, completing the AGI well, as Avigal mentioned. And we're now near completion of our sour gas gathering and adding compression, and it is going to provide us with a much needed sort of unique sour gas solution in the Northern Delaware, which will support our customers' future production growth plans. And not only will we see a step change in our gas volumes because of this capability, but like it positions us extremely well for future growth in the region.
Ivan Scotto: Got it. That makes sense. And then just turning to leverage and coverage targets. Anything to note on how you're working toward achieving these long-term targets? I know you hit 1.3x coverage this quarter, but curious if there were any initiatives that you want to highlight that helped you achieve that? Or just any general comments on how you're working toward achieving these targets would be great.
Avigal Soreq: Yes. So obviously, we are very disciplined around our capital deployment. As you can see, we are very disciplined around what we did with M&A, right? We did both water and a bolt-on acquisition around 5x to 6x, where they traded now around probably 9x to 10x. So we are not going to do something which is not accretive to leverage ratio, coverage ratio, free cash flow and not supported by our strategy. So the combined answer is a combination of extremely disciplined on one side, but on the other side, extremely aggressive of getting the company towards the right direction and very disciplined around capital allocation. And I will let Robert to chime in.
Robert Wright: Yes. Thanks, Avigal. Yes, Ivan, great question. We continue to remain comfortable in our long-term leverage target of 3.5x. We're seeing significant growth opportunities. And similar to what we've said in the past, because of that, we will manage our leverage ratio around that 4x as we grow. As we said in the prepared remarks, our leverage ratio right now does sit around the 4.23x. And that's largely due to a lot of the growth spend that Mohit talked about. We expect return up to $75 million in EBITDA on spend of around $180 million to $190 million. So very low multiple there. And considering this, we expect to manage our leverage ratio down as we start to realize this EBITDA in our results. It's probably also just important to note that despite all this recent growth spending, we've maintained a strong balance sheet. We have over $1 billion of availability, which will facilitate our continued growth trajectory into the future.
Operator: Your next question is from the line of Gabe Daoud with Truist.
Gabe Daoud: I just wanted to maybe follow up a little bit on the comments around what you're seeing on the ground as you progress through 2026. Obviously, some pretty big outperformance in the quarter and just kind of looking at third-party data suggests that you've already tied in on the gas side a decent amount of wells, especially relative to what you did last year. So could you maybe just comment on that? And how should we think about like well connects on the gas side as you progress through the year? And I guess, similarly, how should we expect Libby 2 to ramp in the back half?
Avigal Soreq: Yes, absolutely. I will start and let Mark chime in. So obviously, the connection that we are seeing on the ground are going very well, both on the compressor side and on the plant itself. We have a very good close relationship with our producers, and we are committed to give the best service we can on time, on budget and making sure it's all ties together with the right offering between sweet and sour. We have seen increase, as we mentioned earlier, between Q1 to Q2 and between Q2 to Q3, and we'll see more progression around that once we are completing our sour gas offering. But why don't you chime in, Mark?
Mark Hobbs: Sure, Avigal. Yes. Look, I think Avigal said it well, Gabe. Look, we're seeing this shift from sweet to sour. And so we've seen our gas kind of ramp up as we built out our capabilities. We're optimizing our system around compression and look forward to, like I said, a step change in our volumes as we move through some of that completion here in the third quarter as we move into the fourth quarter. So I think we're on a great trajectory to really increase the utilization of our plants as we move through the year.
Gabe Daoud: Got it. Got it. Okay. That's great color. And then just a quick follow-up. What are you seeing on the inorganic opportunity front? Is that something that would still be attractive to you? Or do you think you have enough organic opportunities to keep you busy over the next couple of years?
Avigal Soreq: Yes. So obviously, we have all the time our eyes open around inorganic opportunities. As I said in the past, in order for something to get to the finish line, it needs to be accretive to leverage ratio, coverage ratio and free cash flow so that we are extremely disciplined around that. When we saw those opportunities coming our way, we were not -- we didn't hesitate. We act on that very quickly and aggressively as needed. But the inorganic, it's not -- that's not the objective. The objective is to grow the company in a measured, disciplined, smart way. On the other side, we can be very happy if you're putting on the intrinsic value that we see on our asset, we bought something around 5x to 6x, probably now it's around 10x. And we have seen lately the gas deal that was in the market was mid-low to mid-teens, which if you are doing the intrinsic value of each one of our assets as it stands now and with including the development that we are now doing, you will get to a very high unit price. So there is a tremendous amount of value that we created versus where the market is now. And our commitment to the market is still to create additional more value. We grew that company 15% year-over-year in the last few years, and we increased distribution 54 quarters in a row. All of that probably the best combination between growth and yield to our investors. So we are very proud of what we do, and we'll keep doing it.
Operator: There are no further questions at this time. I will now turn the call back to Avigal Soreq, President and Chairman, for closing remarks.
Avigal Soreq: Thank you. So I want -- I would like to thank my colleagues around the table for the hard work and dedication. I would like to thank to our Board for their trust and support. I would like to thank you, the investor, of seeing that a nice, huge transformation in DKL. And most importantly, I would like to thank the entire employees of making this company as good as we possibly can every day. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.