Antero Midstream (AM) - 2024 Q2 - Quarterly Results

Executive Summary & Second Quarter 2024 Highlights Second Quarter 2024 Highlights Antero Midstream reported strong Q2 2024 results, with adjusted net income and EBITDA up 5%, free cash flow after dividends surging 41%, a strategic acquisition, and an S&P credit rating upgrade Q2 2024 Financial Highlights (vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--------------------------------- | :------ | :------ | :--------------- | | Net Income | $86 million | $87 million | Flat | | Diluted Net Income per Share | $0.18 | $0.18 | Flat | | Adjusted Net Income | $110 million | $105 million | 5% Increase | | Diluted Adjusted Net Income per Share | $0.23 | $0.22 | 5% Increase | | Adjusted EBITDA | $255 million | $243 million | 5% Increase | | Capital Expenditures | $51 million | $49 million | 4.1% Increase | | Free Cash Flow After Dividends | $43 million | $31 million | 41% Increase | | Leverage Ratio (as of June 30, 2024) | 3.1x | 3.5x (Prior Year) | Decrease | - Acquired Marcellus gathering and compression assets for $70 million, increasing throughput from key investment-grade customer Antero Resources[2] - Leverage ratio maintained at 3.1x as of June 30, 2024, down from 3.5x in the prior year, with $120 million reduction in net debt over the past year[2] - S&P Global Ratings upgraded the company and issuer credit ratings to BB+[2] - Extended credit facility maturity to 2029, maintaining $1.25 billion in committed capacity[2] Second Quarter 2024 Financial and Operating Results Operating Volumes and Joint Venture Performance Q2 2024 operating volumes showed slight decreases in low-pressure gathering and total processing, increases in high-pressure gathering and JV fractionation, and a significant decline in freshwater delivery Average Daily Operating Volumes (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--------------------------------- | :------ | :------ | :------- | | Low Pressure Gathering (MMcf/d) | 3,258 | 3,304 | (1)% | | Compression (MMcf/d) | 3,246 | 3,251 | — | | High Pressure Gathering (MMcf/d) | 2,994 | 2,922 | 2% | | Freshwater Delivery (MBbl/d) | 81 | 105 | (23)% | | Joint Venture Total Processing (MMcf/d) | 1,588 | 1,600 | (1)% | | Joint Venture Total Fractionation (MBbl/d) | 40 | 39 | 3% | - Freshwater delivery volume decreased due to Antero Resources reducing its completion crews to one in early 2024[4] - Joint venture processing capacity utilization was 99%, and fractionation capacity utilization was 100%[5] Revenue and Operating Expenses Q2 2024 total revenue increased to $270 million, primarily from gathering and processing, with direct operating expenses totaling $56 million, largely for water treatment Q2 2024 Revenue Composition | Business Segment | Revenue (Millions USD) | | :---------------------- | :--------------------- | | Gathering and Processing | $229 | | Water Treatment | $59 | | Customer Relationship Amortization | ($18) | | Total Revenue | $270 | - Water treatment revenue included $27 million from wastewater treatment and high-flow water transfer services[6] Q2 2024 Operating Expenses | Expense Type | Amount (Millions USD) | | :------------------------------------ | :-------------------- | | Direct Operating Expenses | $56 | | General and Administrative Expenses (excluding equity-based compensation) | $10 | | Equity-Based Compensation Expense | $12 | | Depreciation | $38 | - Water treatment operating expenses included $24 million for wastewater treatment and high-flow water transfer services[7] Net Income and Adjusted Net Income Q2 2024 net income was $86 million, flat year-over-year, while diluted adjusted net income, a non-GAAP measure, increased 5% to $110 million, reflecting adjustments for debt extinguishment and asset sales Net Income and Adjusted Net Income (Thousands USD, Q2 2024 vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | | :---------------------------------------------------------------- | :------------------ | :------------------ | | Net Income | $86,037 | $87,012 | | Customer Relationship Amortization | 17,668 | 17,668 | | Loss on Debt Extinguishment | 13,691 | — | | Loss on Settlement of Asset Retirement Obligations | — | 279 | | Loss on Asset Sales | 1,379 | 5,814 | | Tax Impact of Adjusting Items | (8,430) | (6,109) | | Adjusted Net Income | $110,345 | $104,664 | - Diluted net income per share remained at $0.18, while diluted adjusted net income per share increased 5% to $0.23[8] Adjusted EBITDA and Free Cash Flow Q2 2024 adjusted EBITDA increased 5% to $255 million, with free cash flow before dividends up 9% to $152 million, and free cash flow after dividends surging 41% to $43 million, driven by lower interest and higher operating cash flow Adjusted EBITDA and Free Cash Flow (Thousands USD, Q2 2024 vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :----------------------------- | :------------------ | :------------------ | :------- | | Adjusted EBITDA | $254,992 | $242,525 | 5% | | Net Interest Expense | $52,186 | $55,388 | (6)% | | Capital Expenditures (Accrual Basis) | $51,276 | $48,584 | 5.5% | | Free Cash Flow Before Dividends | $151,530 | $138,553 | 9% | | Dividends Declared (Accrual Basis) | $108,284 | $107,927 | 0.3% | | Free Cash Flow After Dividends | $43,246 | $30,626 | 41% | - Net interest expense decreased 6%, primarily due to a reduction in average total debt[10] - Net cash provided by operating activities increased from $185.6 million in Q2 2023 to $215.8 million in Q2 2024[12] Operational Update In Q2 2024, Antero Midstream connected 11 wells to its gathering system and provided freshwater delivery services to 19 wells - Connected 11 wells to the gathering system[13] - Provided freshwater delivery services to 19 wells[13] Capital Investments Q2 2024 total capital expenditures were $51 million, primarily allocated to gathering and compression infrastructure - Total capital expenditures: $51 million[14] - Gathering and compression investments: $41 million[14] - Water infrastructure investments: $10 million[14] 2023 ESG Report 2023 ESG Report Antero Midstream released its 2023 ESG Report, marking its seventh consecutive year of reporting, highlighting progress in emissions reduction, local economic impact, increased water recycling, and operational safety - Released the 2023 ESG Report on July 31, 2024, marking the seventh consecutive year of ESG reporting[15] - Report highlights include progress in emissions reduction, significant local economic impact, increased water recycling rates, and a continued commitment to operational safety[15] Investor Information Conference Call Details A conference call for Q2 2024 results is scheduled for August 1, 2024, with a replay available until August 8, 2024 - Conference call: Thursday, August 1, 2024, at 10:00 AM MT[16] - Conference call replay available until Thursday, August 8, 2024, at 10:00 AM MT[16] Presentation Availability An updated presentation for the earnings conference call will be posted on the company's website prior to the call - Updated presentation will be posted on www.anteromidstream.com prior to the conference call[17] Non-GAAP Financial Measures and Definitions Adjusted Net Income Definition and Reconciliation Adjusted Net Income is defined as net income plus specific non-recurring or non-cash items, used to assess assets' operational performance - Adjusted Net Income is defined as net income plus customer relationship amortization, loss on debt extinguishment, loss on settlement of asset retirement obligations, and loss on asset sales, less the tax impact of adjusting items[18] - Used to assess the operational performance of assets[18] Adjusted EBITDA Definition and Reconciliation Adjusted EBITDA, a non-GAAP measure, evaluates financial performance, operational efficiency, and project feasibility, defined as net income adjusted for various non-cash and financing-related items - Adjusted EBITDA is defined as net income plus net interest expense, income tax expense, depreciation expense, customer relationship amortization, loss on debt extinguishment, loss on asset sales, accretion of asset retirement obligations, impairment of property and equipment, loss on settlement of asset retirement obligations, and equity-based compensation expense, excluding equity in earnings of unconsolidated affiliates, plus distributions from unconsolidated affiliates[18] - Used to evaluate financial performance, operational performance compared to publicly traded peers, and the feasibility of acquisitions and other capital expenditure projects[19] Adjusted EBITDA (Trailing Twelve Months Ended June 30, 2024) | Metric | Amount (Thousands USD) | | :---------------------------------------------------------------- | :--------------------- | | Net Income | $388,230 | | Net Interest Expense | 212,727 | | Income Tax Expense | 132,446 | | Depreciation Expense | 140,301 | | Customer Relationship Amortization | 70,672 | | Equity-Based Compensation Expense | 37,706 | | Equity in Earnings of Unconsolidated Affiliates | (110,155) | | Distributions from Unconsolidated Affiliates | 137,195 | | Loss on Debt Extinguishment | 13,750 | | Adjusted EBITDA | $1,025,223 | Free Cash Flow Definition and Reconciliation Free cash flow before dividends is adjusted EBITDA less net interest and accrual-basis capital expenditures; free cash flow after dividends further subtracts accrual-basis dividends, used to compare cash generation performance across periods - Free Cash Flow Before Dividends = Adjusted EBITDA - Net Interest Expense - Capital Expenditures (Accrual Basis)[20] - Free Cash Flow After Dividends = Free Cash Flow Before Dividends - Dividends Declared (Accrual Basis)[20] - Used as a performance measure to compare cash generation performance across periods[20] Capital Expenditures Reconciliation (Thousands USD, Q2 2024 vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | | :------------------------------------------------- | :------------------ | :------------------ | | Capital Expenditures (Cash Basis) | $43,399 | $42,044 | | Change in Accrued Capital Costs | 7,877 | 6,540 | | Capital Expenditures (Accrual Basis) | $51,276 | $48,584 | Net Debt and Leverage Definition and Reconciliation Net debt is consolidated total debt (excluding unamortized debt premiums and issuance costs) less cash, with the leverage ratio calculated as net debt divided by trailing twelve months adjusted EBITDA, serving as a key financial leverage indicator - Net Debt = Consolidated Total Debt (excluding unamortized debt premiums and debt issuance costs) - Cash and Cash Equivalents[23] - Leverage Ratio = Net Debt / Trailing Twelve Months Adjusted EBITDA[23] Consolidated Net Debt (as of June 30, 2024) | Debt Type | Amount (Thousands USD) | | :-------------------------- | :--------------------- | | Bank Credit Facility | $555,700 | | 5.75% Senior Notes due 2027 | 650,000 | | 5.75% Senior Notes due 2028 | 650,000 | | 5.375% Senior Notes due 2029 | 750,000 | | 6.625% Senior Notes due 2032 | 600,000 | | Consolidated Total Debt | $3,205,700 | | Less: Cash and Cash Equivalents | — | | Consolidated Net Debt | $3,205,700 | Company Information About Antero Midstream Corporation Antero Midstream Corporation owns, operates, and develops midstream gathering, compression, processing, and fractionation assets in the Appalachian Basin, along with integrated water assets primarily serving Antero Resources Corporation - Antero Midstream operates midstream gathering, compression, processing, and fractionation assets in the Appalachian Basin[27] - Also owns integrated water assets primarily serving Antero Resources Corporation[27] Forward-Looking Statements This press release contains forward-looking statements subject to various risks and uncertainties, including commodity price fluctuations, regulatory changes, and operational risks, cautioning that actual results may differ materially - Statements regarding future activities, events, or developments are forward-looking and subject to risks and uncertainties[28] - Risks include commodity price fluctuations, inflation, supply chain disruptions, environmental risks, regulatory changes, and cybersecurity risks[29] - Antero Midstream expressly disclaims any obligation or undertaking to publicly update or revise any forward-looking statements, except as required by law[28] Contact Information Investor relations contact information is provided for further inquiries - Contact: Justin Agnew, VP Finance and Investor Relations, Antero Midstream, Phone: (303) 357-7269, Email: jagnew@anteroresources.com[30] Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets As of June 30, 2024, total assets were $5.775 billion, a slight increase from December 31, 2023, with long-term debt as the primary liability Condensed Consolidated Balance Sheets (Thousands USD) | Metric | December 31, 2023 | June 30, 2024 | | :--------------------------------- | :---------------- | :---------------- | | Total Current Assets | $91,128 | $103,598 | | Property and Equipment, Net | $3,793,523 | $3,868,885 | | Investments in Unconsolidated Affiliates | $626,650 | $612,847 | | Customer Relationships | $1,215,431 | $1,180,095 | | Total Assets | $5,737,618 | $5,774,967 | | Total Current Liabilities | $96,417 | $115,969 | | Long-Term Debt | $3,213,216 | $3,186,577 | | Deferred Income Tax Liabilities, Net | $265,879 | $330,802 | | Total Liabilities | $3,585,887 | $3,647,879 | | Total Stockholders' Equity | $2,151,731 | $2,127,088 | | Total Liabilities and Stockholders' Equity | $5,737,618 | $5,774,967 | Condensed Consolidated Statements of Operations and Comprehensive Income In Q2 2024, total revenue increased to $269.8 million, primarily from gathering and compression, with operating income rising to $152.8 million, but net income slightly decreased to $86 million due to higher other expenses Condensed Consolidated Statements of Operations (Thousands USD, Q2 2024 vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | | :---------------------------------------------------------------- | :---------- | :---------- | | Total Revenue | $269,795 | $258,287 | | Total Operating Expenses | $117,042 | $112,764 | | Operating Income | $152,753 | $145,523 | | Net Interest Expense | ($52,186) | ($55,388) | | Equity in Earnings of Unconsolidated Affiliates | $27,597 | $25,972 | | Loss on Debt Extinguishment | ($13,691) | — | | Total Other Expenses | ($38,280) | ($29,416) | | Income Before Income Taxes | $114,473 | $116,107 | | Income Tax Expense | ($28,436) | ($29,095) | | Net Income and Comprehensive Income | $86,037 | $87,012 | | Diluted Net Income per Share | $0.18 | $0.18 | Selected Operating Data Q2 2024 operating data showed slight decreases in low-pressure gathering and compression, a 2% increase in high-pressure gathering, a 23% decrease in freshwater delivery, and generally slight increases in average realized fees Operating Data (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--------------------------------- | :------ | :------ | :------- | | Low Pressure Gathering (MMcf) | 296,489 | 300,706 | (1)% | | Compression (MMcf) | 295,400 | 295,801 | * | | High Pressure Gathering (MMcf) | 272,447 | 265,890 | 2% | | Freshwater Delivery (MBbl) | 7,362 | 9,585 | (23)% | | Wells Served with Freshwater Delivery | 19 | 23 | (17)% | | Joint Venture Processing (MMcf) | 144,520 | 145,645 | (1)% | | Joint Venture Fractionation (MBbl) | 3,640 | 3,553 | 2% | Average Realized Fees (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :------------------------------------ | :------ | :------ | :------- | | Average Low Pressure Gathering Fee ($/Mcf) | $0.36 | $0.35 | 3% | | Average Compression Fee ($/Mcf) | $0.21 | $0.21 | * | | Average High Pressure Gathering Fee ($/Mcf) | $0.22 | $0.21 | 5% | | Average Freshwater Delivery Fee ($/Bbl) | $4.31 | $4.21 | 2% | - Average realized fees for Q2 2024 included an approximate 1.6% annual CPI adjustment[36] Condensed Consolidated Results of Segment Operations In Q2 2024, the Gathering and Processing segment generated $219.7 million in total revenue and $153.6 million in operating income, significantly outperforming the Water Treatment segment's $50.1 million revenue and $1.1 million operating income Segment Revenue and Operating Income (Thousands USD, Q2 2024) | Segment | Total Revenue | Operating Income | | :-------------------------- | :------------- | :--------------- | | Gathering and Processing | $219,721 | $153,561 | | Water Treatment | $50,074 | $1,059 | | Unallocated | — | ($1,867) | | Consolidated Total | $269,795 | $152,753 | - Equity in earnings of unconsolidated affiliates contributed $27.6 million to the Gathering and Processing segment[38] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash from operating activities increased to $426.4 million, net cash used in investing activities rose to $148.4 million due to acquisitions, and net cash used in financing activities remained $278 million Condensed Consolidated Statements of Cash Flows (Thousands USD, Six Months Ended June 30, 2024 vs. 2023) | Activity | 2024 | 2023 | | :------------------------------------------ | :--------- | :--------- | | Net Cash Provided by Operating Activities | $426,367 | $368,305 | | Net Cash Used in Investing Activities | ($148,422) | ($84,211) | | Net Cash Used in Financing Activities | ($278,011) | ($284,094) | | Net Decrease in Cash and Cash Equivalents | ($66) | — | | Cash and Cash Equivalents at End of Period | — | — | - Acquisitions of gathering systems and facilities accounted for $70.6 million in 2024 investing activities[40] - Financing activities included the issuance of $600 million in senior notes and the redemption of $560.9 million in senior notes[40]