Antero Midstream (AM) - 2023 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) This section presents Antero Midstream Corporation's unaudited condensed consolidated financial statements for Q1 2023 and 2022, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets The balance sheet shows a slight decrease in total assets to $5.77 billion as of March 31, 2023, from $5.79 billion at year-end 2022, with stable liabilities and a slight decrease in long-term debt Condensed Consolidated Balance Sheet Highlights (In thousands) | Account | March 31, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $98,414 | $88,993 | | Property and equipment, net | $3,749,220 | $3,751,431 | | Total assets | $5,770,527 | $5,791,320 | | Total current liabilities | $96,219 | $102,077 | | Long-term debt | $3,331,320 | $3,361,282 | | Total liabilities | $3,595,043 | $3,599,002 | | Total stockholders' equity | $2,175,484 | $2,192,318 | Condensed Consolidated Statements of Operations and Comprehensive Income For Q1 2023, total revenue increased to $259.5 million and net income rose to $86.5 million, up from $218.5 million and $80.0 million respectively in Q1 2022, while diluted earnings per share remained flat Q1 Statement of Operations Highlights (In thousands, except per share amounts) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenue | $259,475 | $218,491 | | Operating income | $148,345 | $129,154 | | Net income | $86,507 | $80,040 | | Net income per share–diluted | $0.18 | $0.17 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities remained stable at $182.7 million for Q1 2023, while cash used in investing activities significantly decreased to $42.2 million, and cash used in financing activities increased to $140.6 million Q1 Cash Flow Summary (In thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $182,719 | $184,664 | | Net cash used in investing activities | ($42,151) | ($84,146) | | Net cash used in financing activities | ($140,568) | ($100,518) | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's accounting policies, financial results, and significant transactions, including revenue recognition, debt, and legal contingencies - Substantially all revenues are earned from Antero Resources under long-term contracts for gathering, compression, and water handling services[25][33] - In a lawsuit with Veolia Water Technologies, Inc., a court found in favor of the company's subsidiary, Antero Treatment, awarding $242 million in damages plus interest and fees. The damages award was later reduced by $27 million due to an identified error, with an amended judgment pending[114] Disaggregated Revenue by Service (In thousands) | Service | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Gathering & Processing | | | | Gathering—low pressure | $99,637 | $89,437 | | Gathering—low pressure fee rebate | ($12,000) | ($12,000) | | Compression | $58,390 | $51,612 | | Gathering—high pressure | $53,549 | $53,394 | | Water Handling | | | | Fresh water delivery | $46,826 | $32,044 | | Other fluid handling | $30,741 | $21,672 | | Amortization of customer relationships | ($17,668) | ($17,668) | | Total | $259,475 | $218,491 | Long-Term Debt Composition (In thousands) | Debt Instrument | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Credit Facility | $751,100 | $782,000 | | 7.875% senior notes due 2026 | $550,000 | $550,000 | | 5.75% senior notes due 2027 | $650,000 | $650,000 | | 5.75% senior notes due 2028 | $650,000 | $650,000 | | 5.375% senior notes due 2029 | $750,000 | $750,000 | | Total principal | $3,351,100 | $3,382,000 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, highlighting revenue growth driven by volume increases and rate adjustments, alongside capital resources, liquidity, and Adjusted EBITDA reconciliation Results of Operations Q1 2023 revenue increased 19% to $259 million, driven by a 10% rise in Gathering and Processing revenue and a 53% increase in Water Handling revenue, with net income rising 8% to $87 million - Gathering and Processing revenue increased by $17 million (10%) due to higher low pressure and compression volumes from 329 additional wells connected since March 2022 and assets acquired in Q4 2022[142][143] - Water Handling revenue increased by $24 million (53%) due to a 41% increase in fresh water delivery volumes for higher well completions by Antero Resources and increased costs for other fluid handling services[142][146] - Direct operating expenses rose 38% to $58 million, primarily due to costs from acquired compressor stations and higher wastewater trucking volumes and rates[147] - Interest expense increased 23% to $55 million due to higher interest rates on the variable-rate Credit Facility and higher average borrowings following Q4 2022 asset acquisitions[151] Capital Resources and Liquidity The company's primary liquidity sources are operating cash flow and its credit facility, with Q1 2023 operating cash flow at $183 million, and a revised 2023 capital budget of $180-$200 million - The company declared a Q1 2023 cash dividend of $0.2250 per common share, payable on May 10, 2023[157] - The 2023 capital budget was revised to $180-$200 million to support growth from Antero Resources' drilling partnership. Q1 2023 capital expenditures were $34 million[162] - Financing activities in Q1 2023 included net repayments of $31 million on the Credit Facility, compared to net borrowings of $9 million in Q1 2022[161] Non-GAAP Financial Measures Adjusted EBITDA, a key performance indicator, increased 16% to $241.8 million in Q1 2023, driven by higher revenues and distributions from unconsolidated affiliates, partially offset by increased direct operating expenses Reconciliation of Net Income to Adjusted EBITDA (In thousands) | Line Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income | $86,507 | $80,040 | | Interest expense, net | $54,624 | $44,279 | | Income tax expense | $31,670 | $28,067 | | Depreciation expense | $35,196 | $28,300 | | Equity-based compensation | $6,327 | $2,832 | | Amortization of customer relationships | $17,668 | $17,668 | | Equity in earnings of unconsolidated affiliates | ($24,456) | ($23,232) | | Distributions from unconsolidated affiliates | $34,105 | $31,130 | | Other adjustments | $96 | ($54) | | Adjusted EBITDA | $241,781 | $209,030 | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include interest rate risk from its credit facility, credit risk concentrated with Antero Resources, and indirect commodity price exposure - The company is exposed to interest rate risk on its Credit Facility, which had $751 million of borrowings at March 31, 2023. A 1.0% increase in the interest rate would have increased Q1 2023 interest expense by an estimated $2 million[170] - Significant credit risk exists due to dependence on Antero Resources as the primary customer. Any adverse event affecting Antero Resources could materially impact the company's revenues and operating results[171][172] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[173] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[174] PART II—OTHER INFORMATION Legal Proceedings This section details the Veolia lawsuit, where a court ruled in favor of Antero Treatment for breach of contract and fraud, awarding significant damages, with an amended judgment pending appeal - On January 3, 2023, a court found that Antero Treatment had prevailed on its claims against Veolia for breach of contract and fraud, awarding $242 million in damages plus interest, costs, and attorneys' fees[180] - On April 10, 2023, the court identified an error and reduced the damages award by $27 million. An amended judgment has not yet been entered and will be subject to appeal once entered[180] Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the risks described in the 2022 Form 10-K[181] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its $300 million program in Q1 2023 but acquired shares for tax withholding, with $149.8 million remaining available - No shares were repurchased under the company's $300 million share repurchase program during the three months ended March 31, 2023[184] - The company acquired 105,109 shares to satisfy tax withholding obligations from employees upon the vesting of equity awards[184] - As of March 31, 2023, approximately $149.8 million remained available for repurchases under the program, which extends through June 30, 2023[184] Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, certifications, and financial data