Antero Midstream (AM) - 2024 Q2 - Quarterly Report

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements subject to material risks and uncertainties that could cause actual results to differ - The report contains forward-looking statements regarding strategy, future operations, financial position, estimated revenues, and costs[5] - Factors that could cause actual results to differ include Antero Resources' production plans, commodity prices, geopolitical events, and regulatory changes[5] - Investors are cautioned that these statements are subject to risks including commodity price volatility, inflation, and supply chain disruptions[8] PART I—FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and operations Item 1. Condensed Consolidated Financial Statements (Unaudited) This item provides the company's unaudited condensed consolidated financial statements for the reported periods Condensed Consolidated Balance Sheets The balance sheets show the company's assets, liabilities, and stockholders' equity as of June 30, 2024, and December 31, 2023 | Metric (in thousands) | Dec 31, 2023 | Jun 30, 2024 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total current assets | $91,128 | $103,598 | +$12,470 | | Property and equipment, net | $3,793,523 | $3,868,885 | +$75,362 | | Investments in unconsolidated affiliates | $626,650 | $612,847 | -$13,803 | | Customer relationships | $1,215,431 | $1,180,095 | -$35,336 | | Total assets | $5,737,618 | $5,774,967 | +$37,349 | | Total current liabilities | $96,417 | $115,969 | +$19,552 | | Long-term debt | $3,213,216 | $3,186,577 | -$26,639 | | Total liabilities | $3,585,887 | $3,647,879 | +$61,992 | | Total stockholders' equity | $2,151,731 | $2,127,088 | -$24,643 | Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (Three Months) For the three months ended June 30, 2024, total revenue and operating income increased while net income slightly decreased year-over-year | Metric (in thousands) | 3 Months Ended Jun 30, 2023 | 3 Months Ended Jun 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :----------- | | Total revenue | $258,287 | $269,795 | +$11,508 | +4.5% | | Total operating expenses | $112,764 | $117,042 | +$4,278 | +3.8% | | Operating income | $145,523 | $152,753 | +$7,230 | +5.0% | | Interest expense, net | $(55,388) | $(52,186) | +$3,202 | -5.8% | | Equity in earnings of unconsolidated affiliates | $25,972 | $27,597 | +$1,625 | +6.3% | | Loss on early extinguishment of debt | $— | $(13,691) | $(13,691) | N/A | | Income before income taxes | $116,107 | $114,473 | $(1,634) | -1.4% | | Income tax expense | $(29,095) | $(28,436) | +$659 | -2.3% | | Net income | $87,012 | $86,037 | $(975) | -1.1% | | Net income per common share–basic | $0.18 | $0.18 | $0.00 | 0.0% | Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (Six Months) For the six months ended June 30, 2024, total revenue increased by 6% and net income increased by 9.5% year-over-year | Metric (in thousands) | 6 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :----------- | | Total revenue | $517,762 | $548,846 | +$31,084 | +6.0% | | Total operating expenses | $223,894 | $229,842 | +$5,948 | +2.7% | | Operating income | $293,868 | $319,004 | +$25,136 | +8.6% | | Interest expense, net | $(110,012) | $(105,494) | +$4,518 | -4.1% | | Equity in earnings of unconsolidated affiliates | $50,428 | $55,127 | +$4,699 | +9.3% | | Loss on early extinguishment of debt | $— | $(13,750) | $(13,750) | N/A | | Income before income taxes | $234,284 | $254,887 | +$20,603 | +8.8% | | Income tax expense | $(60,765) | $(64,924) | $(4,159) | +6.8% | | Net income | $173,519 | $189,963 | +$16,444 | +9.5% | | Net income per common share–basic | $0.36 | $0.39 | +$0.03 | +8.3% | Condensed Consolidated Statements of Stockholders' Equity (Unaudited) These statements detail changes in stockholders' equity, reflecting the impact of dividends, equity-based compensation, and net income | Metric (in thousands) | Dec 31, 2022 | Jun 30, 2023 | Dec 31, 2023 | Jun 30, 2024 | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Common Stock Amount | $4,785 | $4,797 | $4,797 | $4,812 | | Additional Paid-In Capital | $2,104,740 | $2,061,230 | $2,046,487 | $2,036,239 | | Retained Earnings | $82,793 | $87,012 | $100,447 | $86,037 | | Total Equity | $2,192,318 | $2,153,039 | $2,151,731 | $2,127,088 | - Dividends to stockholders for the six months ended June 30, 2024, totaled $(108,989) thousand (Q1 2024) and $(112,080) thousand (Q2 2024)[27] - Equity-based compensation for the six months ended June 30, 2024, was $9,327 thousand (Q1 2024) and $11,599 thousand (Q2 2024)[27] Condensed Consolidated Statements of Cash Flows (Unaudited) For the six months ended June 30, 2024, operating cash flow increased while investing cash outflow grew due to an asset acquisition | Metric (in thousands) | 6 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :----------- | | Net cash provided by operating activities | $368,305 | $426,367 | +$58,062 | +15.8% | | Net cash used in investing activities | $(84,211) | $(148,422) | $(64,211) | +76.2% | | Net cash used in financing activities | $(284,094) | $(278,011) | +$6,083 | -2.1% | | Net decrease in cash and cash equivalents | $— | $(66) | $(66) | N/A | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations supporting the condensed consolidated financial statements (1) Organization Antero Midstream is a midstream energy company serving Antero Resources' activities in the Appalachian Basin under long-term contracts - Antero Midstream is a growth-oriented midstream energy company focused on servicing Antero Resources' production and completion activity in the Appalachian Basin[32] - The company's assets include gathering pipelines, compressor stations, interests in processing and fractionation plants, and water handling assets[32] - Midstream services are provided to Antero Resources under long-term contracts[32] (2) Summary of Significant Accounting Policies This section outlines the basis of presentation for the financial statements and details recently issued accounting standards (a) Basis of Presentation The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP for interim reporting - Financial statements are prepared in accordance with SEC rules and GAAP for interim financial information[33][34] - Net income is equal to comprehensive income as there are no other comprehensive income or loss items[34] - Costs charged to the Company by Antero Resources for business, corporate services, and employee compensation are reflected in the financial statements[35] (b) Principles of Consolidation The financial statements include Antero Midstream Corporation and its wholly-owned subsidiaries, with intercompany transactions eliminated - The financial statements consolidate Antero Midstream Corporation and its wholly-owned subsidiaries[36] - All significant intercompany accounts and transactions are eliminated[36] (c) Recently Issued Accounting Standards The company is evaluating the impact of new FASB ASUs related to segment and income tax disclosures - The company is evaluating ASU No. 2023-07, 'Improvements to Reportable Segment Disclosures,' effective for annual periods beginning after December 15, 2023[38] - The company is evaluating ASU No. 2023-09, 'Improvements to Income Tax Disclosures,' effective for annual periods beginning after December 15, 2024[39] (3) Intangibles Customer relationships are amortized over a weighted average period of 18 years, with a net carrying value of $1.18 billion as of June 30, 2024 - All customer relationships are amortized over a weighted average period of 18 years[40] | Metric (in thousands) | Dec 31, 2023 | Jun 30, 2024 | | :-------------------- | :----------- | :----------- | | Gross carrying value of customer relationships | $1,555,000 | $1,555,000 | | Accumulated amortization of customer relationships | $(339,569) | $(374,905) | | Customer relationships | $1,215,431 | $1,180,095 | | Future Amortization Expense (in thousands) | Amount | | :----------------------------------------- | :----- | | Remainder of year ending December 31, 2024 | $35,336 | | Year ending December 31, 2025 | $70,672 | | Year ending December 31, 2026 | $70,672 | | Year ending December 31, 2027 | $70,672 | | Year ending December 31, 2028 | $70,672 | | Thereafter | $862,071 | | Total | $1,180,095 | (4) Transactions with Affiliates Substantially all revenues are derived from Antero Resources, which also allocates certain operating and administrative costs to the company (a) Revenues Substantially all revenues are earned from Antero Resources for gathering, compression, and water handling services - Substantially all revenues are earned from Antero Resources for gathering, compression, and water handling services[43] - Revenues from gathering and compression services consist of lease income[43] (b) Accounts receivable—Antero Resources and Accounts payable—Antero Resources Intercompany accounts relate to services provided to Antero Resources and costs charged by Antero Resources - Accounts receivable from Antero Resources are primarily for gathering, compression, and water handling services[45] - Accounts payable to Antero Resources are for general and administrative and other costs[45] (c) Allocation of Costs Charged by Antero Resources Antero Resources charges the company for direct operating and general and administrative expenses based on specific allocation metrics - Direct operating expenses charged by Antero Resources were $5 million for Q2 2024 and $10 million for H1 2024[46] - General and administrative expenses charged by Antero Resources were $8 million for Q2 2024 and $16 million for H1 2024[46] - Costs are apportioned based on the nature of expenses and a combination of gross property and equipment, capital expenditures, and labor costs[46] (5) Revenue Revenue is primarily generated from long-term operating lease and service contracts with Antero Resources for midstream services (a) Gathering and Compression Gathering and compression revenues are derived from long-term operating lease agreements with Antero Resources featuring fixed fees - Gathering and compression agreements with Antero Resources are classified as operating leases[51] - Antero Resources has dedicated substantially all of its current and future acreage in West Virginia, Ohio, and Pennsylvania for gathering and compression services[48] - The 2019 gathering and compression agreement has an initial term through 2038[48] - The growth incentive fee rebate program, which reduced low pressure gathering fees, expired on December 31, 2023[49] | Minimum Future Lease Cash Flows (in thousands) | Amount | | :--------------------------------------------- | :----- | | Remainder of year ending December 31, 2024 | $154,093 | | Year ending December 31, 2025 | $320,323 | | Year ending December 31, 2026 | $301,108 | | Year ending December 31, 2027 | $236,768 | | Year ending December 31, 2028 | $168,465 | | Thereafter | $276,219 | | Total | $1,456,976 | (b) Water Handling Water handling services are provided to Antero Resources under a long-term agreement with fixed and cost-plus fee structures - The water services agreement with Antero Resources has an initial term through 2035[57] - Services include fixed fees for fresh water deliveries and cost-plus-3% or cost-of-service fees for other fluid handling services[57] - Revenue is recognized when service obligations are completed[58] (c) Disaggregation of Revenue Revenue is disaggregated by service and fee type, showing the impact of the expired low pressure gathering fee rebate in 2024 | Revenue by Type of Service (in thousands) | 3 Months Ended Jun 30, 2023 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Gathering—low pressure | $105,042 | $105,580 | $204,679 | $212,316 | | Gathering—low pressure fee rebate | $(12,000) | $— | $(24,000) | $— | | Compression | $61,565 | $62,648 | $119,955 | $125,232 | | Gathering—high pressure | $56,461 | $60,765 | $110,010 | $119,038 | | Fresh water delivery | $40,399 | $31,700 | $87,225 | $75,846 | | Other fluid handling | $24,488 | $26,770 | $55,229 | $51,750 | | Amortization of customer relationships | $(17,668) | $(17,668) | $(35,336) | $(35,336) | | Total Revenue | $258,287 | $269,795 | $517,762 | $548,846 | | Revenue by Type of Contract (in thousands) | 3 Months Ended Jun 30, 2023 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Per unit fixed fee (Gathering & Processing) | $223,068 | $228,993 | $434,644 | $456,586 | | Gathering—low pressure fee rebate | $(12,000) | $— | $(24,000) | $— | | Per unit fixed fee (Water Handling) | $40,673 | $32,113 | $87,772 | $76,930 | | Cost plus 3% (Water Handling) | $18,797 | $19,128 | $43,242 | $36,538 | | Cost of service fee (Water Handling) | $5,417 | $7,229 | $11,440 | $14,128 | | Amortization of customer relationships | $(17,668) | $(17,668) | $(35,336) | $(35,336) | | Total Revenue | $258,287 | $269,795 | $517,762 | $548,846 | (6) Property and Equipment Net property and equipment increased to $3.87 billion, partly due to a $70 million asset acquisition in May 2024 (a) Summary of Property and Equipment Net property and equipment increased primarily due to additions in gathering systems and facilities | Metric (in thousands) | Dec 31, 2023 | Jun 30, 2024 | | :-------------------- | :----------- | :----------- | | Land | $31,668 | $31,237 | | Gathering systems and facilities | $3,345,845 | $3,514,707 | | Permanent buried pipelines and equipment | $646,469 | $653,814 | | Construction-in-progress | $192,852 | $154,590 | | Total property and equipment | $4,326,102 | $4,474,836 | | Less accumulated depreciation | $(532,579) | $(605,951) | | Property and equipment, net | $3,793,523 | $3,868,885 | (b) Asset Acquisition The company acquired interconnected Marcellus gas gathering and compression assets from Summit for $70 million in cash - On May 1, 2024, Antero Midstream acquired Marcellus gas gathering and compression assets from Summit for $70 million in cash[68] - The acquired assets include 48 miles of high-pressure gathering pipelines and two compressor stations with 100 MMcf/d of compression capacity[68] - These assets were already interconnected to the company's existing systems and service Antero Resources' production[68] (7) Long-Term Debt This section details the company's Credit Facility and Senior Notes, highlighting recent amendments, issuances, and redemptions (a) Credit Facility The company amended its senior secured revolving credit facility, maintaining commitments at $1.25 billion and extending the maturity to 2029 - On July 30, 2024, the senior secured revolving credit facility was amended and restated[72] - Lender commitments remain at $1.25 billion, with the new maturity date extended to July 30, 2029[73] - The facility includes covenants on indebtedness, leverage, and interest coverage ratios[74] - Borrowings bear interest at a variable rate based on Adjusted Term SOFR or Base Rate, plus an applicable interest margin[75] - As of June 30, 2024, outstanding borrowings were $556 million with a weighted average interest rate of 7.06%[76] (b) 7.875% Senior Notes Due 2026 The $550 million of 7.875% senior notes due 2026 were fully redeemed, resulting in a $14 million loss on early debt extinguishment - The $550 million aggregate principal amount of 7.875% senior notes due 2026 were fully repurchased or redeemed during Q1 and Q2 2024[77] - A loss on early debt extinguishment of $14 million was recognized[79] (c) 5.75% Senior Notes Due 2027 The $650 million of 5.75% senior notes due 2027 are unsecured and effectively subordinated to the Credit Facility - $650 million of 5.75% senior notes due March 1, 2027, were issued[82] - These notes are unsecured, effectively subordinated to the Credit Facility, and guaranteed by Antero Midstream Corporation and its subsidiaries[82] - Redeemable by the company at various prices, and holders can require repurchase upon a change of control and rating decline[82] (d) 5.75% Senior Notes Due 2028 The $650 million of 5.75% senior notes due 2028 are unsecured and effectively subordinated to the Credit Facility - $650 million of 5.75% senior notes due January 15, 2028, were issued[83] - These notes are unsecured, effectively subordinated to the Credit Facility, and guaranteed by Antero Midstream Corporation and its subsidiaries[83] - Redeemable by the company at various prices, and holders can require repurchase upon a change of control and rating decline[83] (e) 5.375% Senior Notes Due 2029 The $750 million of 5.375% senior notes due 2029 are unsecured and effectively subordinated to the Credit Facility - $750 million of 5.375% senior notes due June 15, 2029, were issued[84] - These notes are unsecured, effectively subordinated to the Credit Facility, and guaranteed by Antero Midstream Corporation and its subsidiaries[84] - Redeemable by the company at various prices, and holders can require repurchase upon a change of control and rating decline[84] (f) 6.625% Senior Notes Due 2032 In January 2024, the company issued $600 million of 6.625% senior notes due 2032, which are unsecured and redeemable - On January 16, 2024, $600 million of 6.625% senior notes due February 1, 2032, were issued[85] - These notes are unsecured, effectively subordinated to the Credit Facility, and guaranteed by Antero Midstream Corporation and its subsidiaries[85] - Redeemable by the company on or after February 1, 2027, or earlier with a 'make-whole' premium[85][86][87] (g) Senior Notes Guarantors Antero Midstream Corporation and its wholly-owned subsidiaries fully and unconditionally guarantee the Senior Notes - Antero Midstream Corporation and its wholly-owned subsidiaries fully and unconditionally guarantee the 2027, 2028, 2029, and 2032 Senior Notes[88] - Guarantors can be released from obligations under specific conditions, including sale/disposition or release of other credit facility guarantees[88][89] (8) Accrued Liabilities Accrued liabilities increased to $96.2 million, primarily driven by higher accrued interest expense and capital expenditures | Accrued Liabilities (in thousands) | Dec 31, 2023 | Jun 30, 2024 | | :--------------------------------- | :----------- | :----------- | | Capital expenditures | $22,195 | $23,889 | | Operating expenses | $12,060 | $11,248 | | Interest expense | $37,565 | $51,356 | | Ad valorem taxes | $6,521 | $7,265 | | Other | $2,289 | $2,444 | | Total accrued liabilities | $80,630 | $96,202 | (9) Equity-Based Compensation This section details the company's long-term incentive plan, which was amended to increase available shares and extend its term (a) Summary of Equity-Based Compensation The amended AM LTIP increased reserved shares to 28.7 million and extended the plan term to 2034 - The Amended and Restated Antero Midstream Corporation Long Term Incentive Plan (AM LTIP) was approved on June 5, 2024[93] - The AM LTIP increased reserved shares from 15,398,901 to 28,735,901 and extended the plan term to June 5, 2034[93] - As of June 30, 2024, 16,252,332 shares were available for future grant under the AM LTIP[93] | Equity-Based Compensation Expense (in thousands) | 3 Months Ended Jun 30, 2023 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | | :----------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Restricted stock units | $6,549 | $8,795 | $11,610 | $15,922 | | Performance share units | $1,723 | $2,554 | $2,784 | $4,505 | | Equity awards issued to directors | $227 | $250 | $432 | $499 | | Total expense | $8,499 | $11,599 | $14,826 | $20,926 | (b) Restricted Stock Unit Awards As of June 30, 2024, 5.8 million unvested RSU units remained, with $58 million in unamortized compensation expense | RSU Activity (in thousands) | Number of Units | Weighted Average Grant Date Fair Value | | :-------------------------- | :-------------- | :------------------------------------- | | Balance at Dec 31, 2023 | 5,877,170 | $10.28 | | Granted | 2,459,643 | $13.44 | | Vested | (2,558,221) | $9.98 | | Forfeited | (5,529) | $11.07 | | Balance at Jun 30, 2024 | 5,773,063 | $11.75 | - As of June 30, 2024, unamortized equity-based compensation expense of $58 million related to unvested RSUs is expected to be recognized over a weighted average period of 2.0 years[98] (c) Performance Share Unit Awards PSUs granted in March 2024 vest based on the company's ROIC over a three-year period ending December 31, 2026 - In March 2024, PSUs were granted to executive officers, vesting based on the company's actual return on invested capital (ROIC) over a three-year period[99] - The likelihood of achieving the performance conditions for 2024 ROIC PSU awards was probable as of June 30, 2024[99] | PSU Activity (in thousands) | Number of Units | Weighted Average Grant Date Fair Value | | :-------------------------- | :-------------- | :------------------------------------- | | Balance at Dec 31, 2023 | 952,101 | $10.90 | | Granted | 350,237 | $13.44 | | Balance at Jun 30, 2024 | 1,302,338 | $11.59 | - As of June 30, 2024, unamortized equity-based compensation expense of $17 million related to unvested PSUs is expected to be recognized over a weighted average period of 1.9 years[101] (10) Cash Dividends The Board declared a cash dividend of $0.2250 per common share for Q2 2024, with $68,750 in preferred dividends in arrears | Period | Dividends (in thousands) | Dividends per Share | | :----- | :----------------------- | :------------------ | | Q4 2023 | $107,918 | $0.2250 | | Q1 2024 | $112,818 | $0.2250 | | Total 2024 YTD | $221,011 | | - On July 10, 2024, the Board declared a cash dividend of $0.2250 per common share for the quarter ended June 30, 2024[105] - A cash dividend of $137,500 was declared on Series A Preferred Stock[105] - As of June 30, 2024, $68,750 in dividends had accumulated in arrears on the Series A Preferred Stock[105] (11) Equity and Net Income Per Common Share This section details the company's preferred stock and the calculation of basic and diluted net income per common share (a) Preferred Stock The company has 10,000 shares of 5.5% Series A Non-Voting Perpetual Preferred Stock outstanding, which rank senior to common stock - 10,000 shares of 5.5% Series A Non-Voting Perpetual Preferred Stock are outstanding[106] - Preferred stock ranks senior to common stock for dividend and liquidation rights[106] - Dividends are cumulative and payable quarterly at 5.5% per annum[106] - Redeemable by the company under certain conditions and convertible into common stock by holders after March 12, 2029[106] (b) Weighted Average Common Shares Outstanding Diluted weighted average common shares outstanding for the six months ended June 30, 2024, were 484.5 million | Metric (in thousands) | 3 Months Ended Jun 30, 2023 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic weighted average number of common shares outstanding | 479,502 | 481,103 | 479,059 | 480,500 | | Add: Dilutive effect of RSUs | 797 | 1,670 | 1,225 | 2,176 | | Add: Dilutive effect of PSUs | 351 | 1,326 | 274 | 1,179 | | Add: Dilutive effect of Series A Preferred Stock | 862 | 679 | 862 | 679 | | Diluted weighted average number of common shares outstanding | 481,512 | 484,778 | 481,420 | 484,534 | (c) Net Income Per Common Share Diluted net income per common share for the six months ended June 30, 2024, increased to $0.39 from $0.36 in the prior year | Metric (in thousands, except per share amounts) | 3 Months Ended Jun 30, 2023 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $87,012 | $86,037 | $173,519 | $189,963 | | Less preferred stock dividends | $(137) | $(137) | $(275) | $(275) | | Net income available to common shareholders | $86,875 | $85,900 | $173,244 | $189,688 | | Net income per common share–basic | $0.18 | $0.18 | $0.36 | $0.39 | | Net income per common share–diluted | $0.18 | $0.18 | $0.36 | $0.39 | (12) Fair Value Measurement This section provides the fair and carrying values of the company's Senior Notes and other financial instruments (a) Senior Unsecured Notes The fair value of the Senior Notes was $2.61 billion as of June 30, 2024, compared to a carrying value of $2.63 billion | Senior Unsecured Notes (in thousands) | Dec 31, 2023 Fair Value | Dec 31, 2023 Carrying Value | Jun 30, 2024 Fair Value | Jun 30, 2024 Carrying Value | | :------------------------------------ | :---------------------- | :-------------------------- | :---------------------- | :-------------------------- | | 2026 Notes | $565,785 | $546,631 | $— | $— | | 2027 Notes | $642,655 | $647,313 | $645,255 | $647,690 | | 2028 Notes | $641,030 | $645,702 | $636,220 | $646,186 | | 2029 Notes | $720,000 | $743,470 | $724,650 | $743,985 | | 2032 Notes | $— | $— | $604,500 | $593,016 | | Total | $2,569,470 | $2,583,116 | $2,610,625 | $2,630,877 | - Fair values are based on Level 2 market data inputs[115] - Carrying values are presented net of unamortized debt issuance costs and debt premium[115] (b) Other Assets and Liabilities The carrying values of short-term assets, liabilities, and the Credit Facility approximated their fair values - Carrying values of accounts receivable and accounts payable approximated fair value due to their short-term nature[118] - The carrying value of the Credit Facility approximated fair value due to variable interest rates reflecting current market conditions[118] (13) Investments in Unconsolidated Affiliates The company holds equity interests in a joint venture with MarkWest and in Stonewall Gas Gathering, accounted for using the equity method - The company holds a 50% equity interest in a joint venture with MarkWest Energy Partners, L.P. for processing and fractionation assets[119] - The company also holds a 15% equity interest in Stonewall Gas Gathering LLC[119] - Investments are accounted for using the equity method[120] | Investment (in thousands) | Dec 31, 2023 | Jun 30, 2024 | | :------------------------ | :----------- | :----------- | | Joint Venture | $508,821 | $498,249 | | Stonewall | $117,829 | $114,598 | | Total Investment in Unconsolidated Affiliates | $626,650 | $612,847 | - Equity in earnings of unconsolidated affiliates for the six months ended June 30, 2024, was $55,127 thousand, with distributions of $(68,930) thousand[122] (14) Contingencies The company is involved in a lawsuit with Veolia Water Technologies, where a court awarded the company $280 million, which Veolia has appealed - Antero Treatment LLC filed suit against Veolia Water Technologies, Inc. for fraud and breach of contract related to the Clearwater Facility[123][124] - In January 2023, the Court found in favor of Antero Treatment, awarding $280 million in damages including pre-judgment interest[126][127] - Veolia filed a notice of appeal, and Antero Treatment filed a cross-appeal in May and June 2023, respectively[127] (15) Reportable Segments The company operates in two reportable segments, gathering and processing and water handling, with performance evaluated based on operating income (a) Summary of Reportable Segments The company's two reportable segments are Gathering and Processing and Water Handling - The company has two reportable segments: Gathering and Processing, and Water Handling[128] - The Gathering and Processing segment includes gathering pipelines, compressor stations, and equity in earnings from the Joint Venture and Stonewall[129] - The Water Handling segment includes two independent systems for delivering water and transporting flowback/produced water[130] (b) Reportable Segments Financial Information The gathering and processing segment consistently generated higher revenues and operating income compared to the water handling segment | Metric (in thousands) | Gathering and Processing (Q2 2023) | Water Handling (Q2 2023) | Gathering and Processing (Q2 2024) | Water Handling (Q2 2024) | | :-------------------- | :--------------------------------- | :----------------------- | :--------------------------------- | :----------------------- | | Total revenues | $201,796 | $56,491 | $219,721 | $50,074 | | Operating income | $137,262 | $10,192 | $153,561 | $1,059 | | Equity in earnings of unconsolidated affiliates | $25,972 | $— | $27,597 | $— | | Additions to property and equipment | $29,959 | $11,823 | $34,607 | $8,792 | | Metric (in thousands) | Gathering and Processing (H1 2023) | Water Handling (H1 2023) | Gathering and Processing (H1 2024) | Water Handling (H1 2024) | | :-------------------- | :--------------------------------- | :----------------------- | :--------------------------------- | :----------------------- | | Total revenues | $392,101 | $125,661 | $438,043 | $110,803 | | Operating income | $271,448 | $25,310 | $307,586 | $14,547 | | Equity in earnings of unconsolidated affiliates | $50,428 | $— | $55,127 | $— | | Additions to property and equipment | $59,156 | $25,583 | $62,330 | $16,142 | | Total Assets (in thousands) | Dec 31, 2023 | Jun 30, 2024 | | :-------------------------- | :----------- | :----------- | | Gathering and Processing | $4,691,827 | $4,760,039 | | Water Handling | $1,045,725 | $1,014,678 | | Unallocated | $66 | $250 | | Total assets | $5,737,618 | $5,774,967 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and operational results Overview Antero Midstream is a growth-oriented midstream energy company that owns, operates, and develops assets to service Antero Resources - Antero Midstream is a growth-oriented midstream energy company primarily servicing Antero Resources' production and completion activity in the Appalachian Basin[143] - Assets include gathering pipelines, compressor stations, interests in processing and fractionation plants, and two independent water handling systems[143] Asset Acquisition On May 1, 2024, the company acquired interconnected Marcellus gas gathering and compression assets from Summit for $70 million in cash - On May 1, 2024, the company acquired Marcellus gas gathering and compression assets from Summit for $70 million in cash, funded by operating cash flow[144] - The acquired assets include 48 miles of high-pressure gathering pipelines and two compressor stations with 100 MMcf/d of compression capacity[144] - No significant capital investments are expected for the acquired assets[144] Financing Highlights Key financing activities include amending the Credit Facility, issuing new 2032 Senior Notes, and redeeming the 2026 Senior Notes Credit Facility The company amended its credit facility, maintaining $1.25 billion in commitments and extending the maturity to July 2029 - On July 30, 2024, the senior secured revolving credit facility was amended and restated[145] - Lender commitments remain at $1.25 billion, with a new maturity date of July 30, 2029[145] Issuance of Senior Notes In January 2024, the company issued $600 million of 6.625% senior notes due 2032 to repay borrowings on its Credit Facility - On January 16, 2024, $600 million of 6.625% senior notes due February 1, 2032, were issued[146] - Net proceeds were used to repay outstanding borrowings on the Credit Facility[146] Repurchase of Senior Notes The company fully repurchased or redeemed its $550 million of 2026 Notes, which were retired as of May 16, 2024 - During the six months ended June 30, 2024, the company fully repurchased or redeemed $550 million aggregate principal amount of its 2026 Notes[147] - The 2026 Notes were retired as of May 16, 2024[147] Share Repurchase Program The Board authorized a $500 million share repurchase program, though no shares were repurchased during the second quarter of 2024 - On February 13, 2024, the Board authorized a share repurchase program for up to $500 million of common stock[148] - No shares were repurchased under this program during the three and six months ended June 30, 2024[148] - The 1% U.S. federal excise tax on stock repurchases applies to this program[148] Market Conditions and Business Trends Commodity price volatility affects Antero Resources' development plans, while inflation and interest rates impact the broader economy Commodity Markets Commodity price changes indirectly impact the company by influencing Antero Resources' drilling plans and throughput volumes - Natural gas prices decreased significantly, while NGLs and oil prices increased during the first half of 2024 compared to 2023[149] - Substantially all revenues are based on fixed-fee contracts, limiting direct impact from commodity price changes[149] - Commodity price changes indirectly impact the company through Antero Resources' drilling and development plans[149] Economic Indicators Elevated inflation and interest rates continue to impact the economy, though CPI-based contract adjustments mitigate some pressures - CPI increased 3% from June 2023 to June 2024, exceeding the Federal Reserve's 2% target[150] - The Federal Reserve increased the federal funds interest rate by 5.25% between March 2022 and June 2024[150] - CPI-based adjustments in contracts mitigate some impacts from inflationary pressures and supply chain disruptions[151] Results of Operations This section provides a comparative analysis of financial performance for the gathering and processing and water handling segments Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2024 Total revenues increased by 4.5%, but net income slightly declined due to a $14 million loss on early debt extinguishment | Metric (in thousands) | Q2 2023 | Q2 2024 | YoY Change | YoY % Change | | :-------------------- | :------ | :------ | :--------- | :----------- | | Total revenues | $258,287 | $269,795 | +$11,508 | +4.5% | | Gathering and processing revenues | $201,796 | $219,721 | +$17,925 | +8.9% | | Water handling revenues | $56,491 | $50,074 | $(6,417) | -11.4% | | Operating income | $145,523 | $152,753 | +$7,230 | +5.0% | | Net income | $87,012 | $86,037 | $(975) | -1.1% | | Operating Data (Q2) | 2023 | 2024 | Change | % Change | | :------------------ | :-------- | :-------- | :-------- | :------- | | Low pressure gathering (MMcf) | 300,706 | 296,489 | (4,217) | (1)% | | Compression (MMcf) | 295,801 | 295,400 | (401) | * | | High pressure gathering (MMcf) | 265,890 | 272,447 | 6,557 | 2% | | Fresh water delivery (MBbl) | 9,585 | 7,362 | (2,223) | (23)% | | Other fluid handling (MBbl) | 4,953 | 5,144 | 191 | 4% | | Wells serviced by fresh water delivery | 23 | 19 | (4) | (17)% | - Low pressure gathering revenue increased $13 million due to lower growth incentive fee rebates and CPI-based rate adjustments[160] - Fresh water delivery revenue decreased $8 million due to a 23% decrease in volumes[162] - Loss on early debt extinguishment of $14 million was recognized in Q2 2024 due to the repurchase/redemption of 2026 Notes[167] Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2024 Total revenues increased by 6% and net income increased by 9.5%, driven by higher gathering and processing revenues | Metric (in thousands) | H1 2023 | H1 2024 | YoY Change | YoY % Change | | :-------------------- | :------ | :------ | :--------- | :----------- | | Total revenues | $517,762 | $548,846 | +$31,084 | +6.0% | | Gathering and processing revenues | $392,101 | $438,043 | +$45,942 | +11.7% | | Water handling revenues | $125,661 | $110,803 | $(14,858) | -11.8% | | Operating income | $293,868 | $319,004 | +$25,136 | +8.6% | | Net income | $173,519 | $189,963 | +$16,444 | +9.5% | | Operating Data (H1) | 2023 | 2024 | Change | % Change | | :------------------ | :-------- | :-------- | :-------- | :------- | | Low pressure gathering (MMcf) | 586,129 | 596,918 | 10,789 | 2% | | Compression (MMcf) | 578,163 | 592,063 | 13,900 | 2% | | High pressure gathering (MMcf) | 518,019 | 542,369 | 24,350 | 5% | | Fresh water delivery (MBbl) | 20,695 | 17,636 | (3,059) | (15)% | | Other fluid handling (MBbl) | 9,918 | 10,205 | 287 | 3% | | Wells serviced by fresh water delivery | 46 | 36 | (10) | (22)% | - Low pressure gathering revenue increased $32 million due to lower growth incentive fee rebates, a 2% increase in volumes, and CPI-based rate adjustments[178] - Fresh water delivery revenue decreased $11 million due to a 15% decrease in volumes[180] - Loss on early debt extinguishment of $14 million was recognized in H1 2024 due to the full repurchase/redemption of 2026 Notes[185] Capital Resources and Liquidity Liquidity is primarily supported by operating cash flows and the Credit Facility, which are expected to be sufficient for near-term needs Sources and Uses of Cash Capital resources are derived from operating cash flows and available borrowings, expected to be adequate for the next 12 months - Capital resources and liquidity are provided by operating cash flows and available borrowings under the Credit Facility[187] - These resources are expected to be adequate for working capital, capital expenditures, and expected quarterly cash dividends for at least the next 12 months[187] - Future cash requirements are expected to be funded from internally generated cash flows or Credit Facility borrowings[188] Operating activities Net cash from operating activities increased by 15.7% due to higher revenues and increased distributions from equity method investments - Net cash provided by operating activities increased from $368 million in H1 2023 to $426 million in H1 2024, a 15.7% increase[189] - The increase was primarily due to higher gathering and processing revenues, changes in working capital, and higher distributions from equity method investments[189] Investing activities Net cash used in investing activities increased by 76.2% due to a $70 million acquisition of gathering and compression assets - Net cash used in investing activities increased from $84 million in H1 2023 to $148 million in H1 2024, a 76.2% increase[190] - The increase was primarily due to the $70 million acquisition of gathering and compression assets in Q2 2024[190] - This was partially offset by a $9 million decrease in capital spending for water handling systems[190] Financing activities Net cash used in financing activities remained stable, reflecting the issuance of 2032 Notes offset by the redemption of 2026 Notes - Net cash used in financing activities was $284 million in H1 2023 and $278 million in H1 2024[191] - Key activities included the issuance of $600 million in 2032 Notes, redemption of $561 million in 2026 Notes, and higher net repayments on the Credit Facility[191] Cash Flows This table summarizes net cash flows, showing a net decrease in cash and cash equivalents of $66 thousand in 2024 | Cash Flows (in thousands) | 6 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | | :------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $368,305 | $426,367 | | Net cash used in investing activities | $(84,211) | $(148,422) | | Net cash used in financing activities | $(284,094) | $(278,011) | | Net decrease in cash and cash equivalents | $— | $(66) | 2024 Capital Investment The 2024 capital budget is $150 million to $170 million, with $81 million expended in the first six months - The 2024 capital budget is set at $150 million to $170 million[193] | Capital Expenditures (in thousands) | 3 Months Ended Jun 30, 2023 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Gathering systems and facilities | $34,475 | $41,352 | $55,724 | $65,914 | | Water handling systems | $13,847 | $9,924 | $26,201 | $15,134 | | Investments in unconsolidated affiliates | $262 | $— | $262 | $— | | Total capital expenditures | $48,584 | $51,276 | $82,187 | $81,048 | Debt Agreements This section refers to Note 7 for information on the company's debt agreements - Refer to Note 7—Long-Term Debt for information on debt agreements[195] Critical Accounting Estimates The company's financial statements are based on GAAP and require estimates and assumptions that affect reported amounts - Financial statements are prepared in accordance with GAAP and require estimates and assumptions[196] - Critical accounting estimates involve reasonable likelihood of materially different reported amounts under different conditions or assumptions[196] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item discusses the company's exposure to commodity price, interest rate, and credit risks Commodity Price Risk Fixed-fee contracts mitigate direct commodity price exposure, but prices indirectly impact the business through Antero Resources' operations - Fixed-fee and cost-of-service contracts aim to avoid direct commodity price exposure[198] - Commodity price risks indirectly impact the company by affecting Antero Resources' development program and production volumes[198] Interest Rate Risk The company's primary interest rate risk stems from floating-rate borrowings under its Credit Facility - Primary exposure to interest rate risk is from floating-rate borrowings under the Credit Facility[200] - A 1.0% increase in the Credit Facility interest rate would have increased interest expense by an estimated $1 million for the six months ended June 30, 2024[200] - As of June 30, 2024, $556 million of borrowings or letters of credit were outstanding under the Prior Credit Facility[200] Credit Risk The company faces significant credit risk due to its dependence on Antero Resources as its primary customer - The company is dependent on Antero Resources as its primary customer, expecting substantially all revenues from them[201] - Any adverse event affecting Antero Resources could negatively impact the company's revenues and operating results[201][202] Item 4. Controls and Procedures This item confirms the effectiveness of disclosure controls and procedures and notes no material changes in internal control Evaluation of Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2024 - Management concluded that disclosure controls and procedures were effective as of June 30, 2024, at a reasonable assurance level[203] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during the three months ended June 30, 2024 - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2024[204] PART II—OTHER INFORMATION This part provides additional information on legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is subject to various legal proceedings, with further details available in Note 14—Contingencies - The company's operations are subject to various legal proceedings and litigation[206] - Refer to Note 14—Contingencies for additional information[206] Item 1A. Risk Factors This section refers to the 2023 Form 10-K for a discussion of business risks, stating no material changes have occurred - For a discussion of business risks, refer to 'Item 1A. Risk Factors' in the 2023 Form 10-K[207] - No material changes to the risks described in the 2023 Form 10-K have occurred[207] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Share purchase activity primarily involved shares transferred to satisfy tax withholding obligations, with no repurchases under the authorized program | Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (2) | | :----- | :----------------------------------- | :--------------------------- | :------------------------------------------------------------------------------ | | April 1, 2024 – April 30, 2024 | 647,730 | $13.66 | $500,000,000 | | May 1, 2024 – May 31, 2024 | 968 | $14.15 | $500,000,000 | | June 1, 2024 – June 30, 2024 | — | — | $500,000,000 | | Total | 648,698 | $13.66 | | - Shares purchased represent common stock transferred to satisfy tax withholding obligations for equity-based awards[209] - No repurchases were made under the $500 million share repurchase program during the three months ended June 30, 2024[209] Item 5. Other Information This item incorporates the description of the Third Amended and Restated Credit Agreement as detailed in Note 7 - The Third Amended and Restated Credit Agreement, dated July 30, 2024, is incorporated by reference from Note 7—Long-Term Debt[210] Item 6. Exhibits This item lists all exhibits filed with the Form 10-Q, including organizational documents, indentures, and certifications - The exhibits include organizational documents, debt indentures, the Amended and Restated Long Term Incentive Plan, the Third Amended and Restated Credit Agreement, CEO/CFO certifications, and iXBRL financial information[211] [SIGNATURES](index=62&type=secti