Delek Logistics Partners, LP (DKL) Cash Flow Statement

The wide quarterly swings in OCF/NI, from 5.27x to 0.66x, suggest that working capital changes and timing of collections are heavily influencing cash generation, rather than core profitability. The 2026Q1 spike was driven by a $94.2M working capital inflow, while 2025Q4 saw a $26.7M outflow, highlighting the lumpy nature of cash conversion. Investors should monitor whether the partnership can smooth these swings, as the gap between net income and operating cash flow may indicate earnings quality issues.

Despite a strong 2026Q1 FCF of $121.9M, the subsequent quarter saw FCF collapse to $11.7M, and 2025Q3 and 2025Q2 were negative, reflecting elevated capital expenditures and volatile working capital. The cumulative FCF over the ten quarters is roughly $165M, which is insufficient to cover the $563M in distributions paid during the same period, implying reliance on external financing. This trajectory suggests that the distribution is not fully supported by organic free cash flow, a key concern for unitholders.

The sharp increase in capex, particularly in 2025Q2 and 2025Q3, aligns with the partnership's expansion into the Permian Basin, likely for third-party gathering assets. However, the elevated capital intensity has not yet translated into commensurate free cash flow, as FCF margins remained negative during those quarters. This suggests that the partnership is prioritizing growth over near-term cash generation, which may pressure distribution coverage until the new assets contribute to cash flows.

The large swings in working capital, particularly the $94.2M inflow in 2026Q1, appear to be driven by timing of receivables and payables, possibly related to wholesale marketing activities. The negative working capital changes in several quarters, such as -$32.1M in 2025Q1, suggest that the partnership is not consistently efficient in managing its cycle. This volatility complicates the assessment of underlying cash generation and may indicate that reported operating cash flow is not a reliable indicator of steady-state performance.

The partnership has consistently paid distributions exceeding its free cash flow, with the gap widening in quarters like 2025Q1 when FCF was -$28.5M and distributions were $59.3M. This suggests that the distribution is not fully covered by organic cash generation, and the partnership may be using debt or asset sales to fund the shortfall. Given the extreme leverage (debt-to-equity of 389.2x), this pattern warrants close monitoring, as it may indicate a distribution at risk if cash flows do not improve.

While operating cash flow has exceeded net income cumulatively, the substantial capital expenditures have consumed most of that cash, leaving free cash flow well below reported earnings. This divergence highlights that the partnership's earnings are not translating into distributable cash, as the heavy investment phase is absorbing cash. The cumulative gap between net income and free cash flow of $215M suggests that the reported profitability is not yet reflected in cash available to unitholders, a critical consideration for distribution sustainability.