Delek US Holdings, Inc. (DK) Earnings

Management highlights

### Overall Operational Execution - The company successfully navigated market volatility caused by geopolitical events in the Middle East and Eastern Europe, which created steep backwardation, swings in crude differentials, and transportation fuel shortages. Management noted that access to crude, high distillate yield, and quick market responsiveness are critical to capturing value in this environment. - The Big Spring refinery turnaround was completed safely, on schedule, and on budget. Post-turnaround, the refinery delivers improved reliability, greater crude slate flexibility, better overall product yields, and higher octane and blending capabilities. There are no planned turnarounds for the remainder of 2026, leaving the full refining system positioned to capture current market strengths. ### Enterprise Optimization Plan (EOP) - EOP continues to drive significant incremental free cash flow growth. The program started targeting ~$100 million in incremental cash flow, and has more than doubled that target to date. Management is advancing the next phase of EOP to deliver an additional meaningful step change to the company's free cash flow profile, with more details to be released in the near future. - EOP is embedded across the entire organization, with all levels continuously generating new improvement initiatives. Management's confidence in the company's mid-cycle free cash flow profile of $650 to $700 million (including DKL distributions, equating to a 15-20% free cash flow yield at current share prices) is increasing. ### Midstream (DKL) Strategic Progress - DKL is nearing completion of its comprehensive sour gas gathering, treatment, processing, and acid gas injection solution in the Northern Delaware Basin. This end-to-end solution is unique to the region and will allow DKL to fully capitalize on growing sour gas production growth opportunities in the Delaware Basin. - DKL has already achieved 80% third-party EBITDA on a performer basis, which meets a key milestone for management's sum-of-the-parts value creation strategy and brings the company closer to its deconsolidation goal. All options for unlocking DKL value remain on the table. ### Renewable Fuel Standard (RFS) and Small Refinery Exemptions (SREs) - The company continues to pursue a proactive strategy to manage RFS obligations. Elevated Renewable Volume Obligation (RVO) costs and the absence of SREs create a significant financial burden for small refineries like DELIC. - The EPA's recent reversal and approval of the SRE petition for Cross Springs confirms the company's argument that RFS obligations create disproportionate economic harm. Management expects the EPA to grant SRE relief to small refineries for 2025 and beyond, and notes that policymakers across the administration, Congress, and EPA recognize the importance of SREs for refineries and the local communities they serve. ### Capital Allocation and Balance Sheet - Management maintains a balanced, disciplined, shareholder-friendly capital allocation strategy: supporting the dividend through full market cycles, strengthening the balance sheet, and returning excess capital via share buybacks. The company has bought back ~10% of its outstanding shares since the start of 2025, outpacing peer activity. - In Q2 2026, the company paid ~$16 million in dividends and ~$20 million in share buybacks. It completed a successful term loan refinancing, paying the term loan down from $920 million to $850 million, reducing standalone DELIC net debt by $72 million quarter-over-quarter.

Guidance

- **Third Quarter 2026 Refining Throughput Guidance**: Tyler refinery: 72,000 to 77,000 barrels per day; El Dorado refinery: 78,000 to 83,000 barrels per day; Big Spring refinery: 68,000 to 73,000 barrels per day. - **Third Quarter 2026 Expense Guidance**: Operating expenses: $220 million to $230 million; G&A: $50 million to $55 million; D&A: $110 million to $120 million. New added disclosure: net interest expense guidance of $75 million to $85 million total, with $28 million to $33 million for DELIC (DK) and $47 million to $52 million for DKL. - **Full Year 2026 DKL Guidance**: DKL reaffirmed its 2026 EBITDA guidance of $520 million to $560 million and confirmed expectations that 2026 third-party EBITDA will exceed 80% on a performer basis. - **Mid-cycle Free Cash Flow Guidance**: Management maintained its mid-cycle free cash flow target of $650 million to $700 million (including DKL distributions), and increased confidence in achieving this target.

Segment performance

For Q2 2026, DELIC US reported overall adjusted EBITDA of approximately $639 million; excluding a 50% RVO adjustment, adjusted EBITDA was approximately $490 million. 1. Refining Segment: Adjusted EBITDA increased quarter-over-quarter driven by stronger refining margins (supported by the segment's high distillate yields) and higher throughput following the successful on-time, on-budget turnaround at the Big Spring refinery. 2. Supply and Marketing Segment: Segment performance improved by $60 million versus the prior quarter. Wholesale marketing contributed $25 million to the gain, partially offset by a $3 million reduction in asphalt contribution, with the remaining improvement coming from supply activities. 3. Logistics Segment (DKL): Delivered its best ever quarterly adjusted EBITDA at approximately $144 million, with strong momentum across all three Permian Basin offerings: crude, natural gas, and water services. DKL maintained its 2026 full-year EBITDA guidance of $520 million to $560 million, and expects 2026 third-party EBITDA to exceed 80% on a performer basis.

Risks & headwinds

- Geopolitical events in the Middle East and Eastern Europe have created sustained market volatility, including steep backwardation, large swings in crude differentials, and global refined product shortages that can impact operational planning and margins. - Elevated RVO costs under the RFS, and uncertainty around the timing and approval of 2025 SREs, create ongoing financial uncertainty for the company's refining segment. - Asphalt pricing and margins face continued volatility from crude price swings tied to current geopolitical uncertainty.

Analyst Q&A

• Q: What is the latest update on the timing and status of 2025 SREs, what implications come from the recent Cross Springs approval, and are there restrictions on monetizing 2025 SRE credits at 2026 prices? /

  A: The SRE issue impacts around 40 refineries across the U.S. half of the industry, centered on the core argument that RFS obligations create disproportionate economic harm that threatens local jobs, community fuel access, and U.S. energy dominance. The Cross Springs approval confirms the EPA and DOE accepted the company's disproportionate harm argument, which bodes well for the strength of the company's 2025 petitions; management expects a timely resolution from regulators that allows industry compliance.

• Q: With current strong cash generation, how should investors expect DELIC to allocate excess capital, between dividends, buybacks, and M&A? /

  A: DELIC maintains a clear, proven capital allocation strategy: it prioritizes maintaining the dividend through all market cycles, followed by a balanced approach between strengthening the balance sheet and returning capital via share buybacks. The company has repurchased ~10% of outstanding shares since early 2025, outpacing peer buyback activity, and will continue returning excess cash rather than holding unnecessary cash on the balance sheet. M&A is only pursued if it creates clear value for shareholders.

• Q: When will the Libby gas complex be completed, and what growth will it drive for DKL's Permian sour gas business? /

  A: Both Libby 1 and Libby 2 are already operating well, and the full sour gas solution (including completed acid gas injection and nearly completed gathering and compression) is nearing full completion. The growing trend of more sour gas production from Permian customers continues, and this end-to-end sour solution is unique in the Northern Delaware. It will drive a step change in processed gas volumes through the remainder of 2026 and positions DKL for long-term regional growth.

• Q: What is the status of DKL deconsolidation and value unlocking, and what is the outlook for M&A in the midstream segment? /

  A: DKL has hit its key milestone of 80% third-party EBITDA, holds high-quality assets in core Permian positions, and current market valuations for midstream assets imply significant upside to DKL's current valuation. All value unlocking options remain on the table, including a full sale of DKL, asset sales, bolt-on acquisitions, and tax-free intercompany buybacks. The current M&A market is favorable for sellers, but no transaction will be pursued unless it creates clear value for shareholders.