Antero Midstream (AM) - 2023 Q3 - Quarterly Report

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Forward-Looking Statements Overview Identifies forward-looking statements, cautioning that actual results may differ due to various risks and uncertainties, including production plans, commodity prices, and regulatory changes - The report contains forward-looking statements regarding strategy, future operations, financial position, estimated revenues, losses, projected costs, prospects, plans, and management objectives[5] - Key factors that could cause actual results to differ materially include Antero Resources' production and development plans, commodity prices, geopolitical events, regulatory changes, and operating hazards[5] - Investors are cautioned that these statements are subject to risks and uncertainties inherent to the business, including commodity price volatility, inflation, and regulatory changes[7] PART I—FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets Total assets slightly decreased, while total liabilities increased, driven by changes in long-term debt and deferred income tax liability Condensed Consolidated Balance Sheets (in thousands): | Metric | December 31, 2022 (in thousands) | September 30, 2023 (Unaudited, in thousands) | |:---|:---|:---| | Total Assets | $5,791,320 | $5,758,711 | | Total Liabilities | $3,599,002 | $3,607,571 | | Total Stockholders' Equity | $2,192,318 | $2,151,140 | | Current Assets | $88,993 | $95,534 | | Current Liabilities | $102,077 | $110,649 | | Long-term Debt | $3,361,282 | $3,258,537 | | Deferred Income Tax Liability | $131,215 | $228,636 | Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Total revenue and net income increased for both the three and nine months ended September 30, 2023, despite higher operating and interest expenses Three Months Ended September 30 (in thousands, except per share amounts): | Metric | 2022 | 2023 | |:---|:---|:---|\n| Total Revenue | $231,034 | $263,839 | | Total Operating Expenses | $93,264 | $101,526 | | Operating Income | $137,770 | $162,313 | | Interest Expense, net | $(47,835) | $(55,233) | | Equity in Earnings of Unconsolidated Affiliates | $24,411 | $27,397 | | Income Before Income Taxes | $114,346 | $134,477 | | Income Tax Expense | $(30,332) | $(36,657) | | Net Income and Comprehensive Income | $84,014 | $97,820 | | Net Income Per Share–Basic | $0.18 | $0.20 | | Net Income Per Share–Diluted | $0.17 | $0.20 | Nine Months Ended September 30 (in thousands, except per share amounts): | Metric | 2022 | 2023 | |:---|:---|:---|\n| Total Revenue | $678,432 | $781,601 | | Total Operating Expenses | $283,112 | $325,420 | | Operating Income | $395,320 | $456,181 | | Interest Expense, net | $(137,540) | $(165,245) | | Equity in Earnings of Unconsolidated Affiliates | $70,467 | $77,825 | | Income Before Income Taxes | $328,247 | $368,761 | | Income Tax Expense | $(84,798) | $(97,422) | | Net Income and Comprehensive Income | $243,449 | $271,339 | | Net Income Per Share–Basic | $0.51 | $0.57 | | Net Income Per Share–Diluted | $0.51 | $0.56 | Condensed Consolidated Statements of Stockholders' Equity (Unaudited) Details changes in preferred stock, common stock, additional paid-in capital, and retained earnings, reflecting dividends, equity-based compensation, and net income - Total stockholders' equity decreased from $2,192,318 thousand at December 31, 2022, to $2,151,140 thousand at September 30, 2023[12][26] - Dividends to stockholders totaled $(108,502) thousand for Q4 2022, $(110,774) thousand for Q1 2023, and $(108,065) thousand for Q2 2023[23][24] - Equity-based compensation contributed $6,327 thousand, $8,499 thousand, and $8,349 thousand to additional paid-in capital for Q4 2022, Q1 2023, and Q2 2023, respectively[23][24] Condensed Consolidated Statements of Cash Flows (Unaudited) Operating cash flows increased, investing cash flows decreased, and financing cash flows significantly increased due to net repayments on the Credit Facility Nine Months Ended September 30 (in thousands): | Cash Flow Activity | 2022 | 2023 | |:---|:---|:---|\n| Net cash provided by operating activities | $530,976 | $570,742 | | Net cash used in investing activities | $(215,956) | $(129,508) | | Net cash used in financing activities | $(315,020) | $(441,234) | | Net increase in cash and cash equivalents | $— | $— | - Cash paid for interest increased from $130,236 thousand in 2022 to $159,019 thousand in 2023[31] Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations of financial reporting, including accounting policies, related-party transactions, revenue, debt, equity, and segment information (1) Organization Antero Midstream is a growth-oriented midstream company servicing Antero Resources' production in the Appalachian Basin with gathering, compression, and water handling assets - Antero Midstream operates and develops midstream energy infrastructure primarily for Antero Resources in the Appalachian Basin[33] - Company assets include gathering pipelines, compressor stations, interests in processing and fractionation plants, and water handling assets[33] (2) Summary of Significant Accounting Policies Outlines the basis of presentation for unaudited condensed consolidated financial statements, confirming GAAP adherence and detailing consolidation principles - Unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP for interim financial information[34][35] - Net income equals comprehensive income as there are no other comprehensive income items[35] - Costs charged by Antero Resources, including general and administrative expenses, are reflected in the financial statements[36] (3) Intangibles Customer relationships are amortized over a weighted average period of 18 years, with a total carrying amount of $1,233,099 thousand as of September 30, 2023 - All customer relationships are amortized over a weighted average period of 18 years, representing their remaining economic life[39] Future Amortization Expense (in thousands): | Period | Amount | |:---|:---|\n| Remainder of year ending December 31, 2023 | $17,668 | | Year ending December 31, 2024 | $70,672 | | Year ending December 31, 2025 | $70,672 | | Year ending December 31, 2026 | $70,672 | | Year ending December 31, 2027 | $70,672 | | Thereafter | $932,743 | | Total | $1,233,099 | (4) Transactions with Affiliates Substantially all revenues are from Antero Resources for gathering, compression, and water handling services, with intercompany accounts for receivables, payables, and allocated costs - Substantially all revenues for the three and nine months ended September 30, 2022 and 2023, were earned from Antero Resources for gathering, compression, and water handling services[42] - Direct operating expenses charged by Antero Resources increased from $3 million to $5 million for the three months ended September 30, 2022 and 2023, respectively, and from $10 million to $13 million for the nine months ended September 30, 2022 and 2023, respectively[44] - General and administrative expenses charged by Antero Resources were $6 million and $7 million for the three months ended September 30, 2022 and 2023, respectively, and $22 million for both nine-month periods[44] (5) Revenue Revenue primarily stems from operating lease agreements for gathering and compression, and service contracts for water handling with Antero Resources, including growth incentive fees and CPI-based adjustments - All gathering and compression revenues are from operating lease agreements, and water handling revenues are from service contracts, with substantially all revenue from Antero Resources[46] - The 2019 gathering and compression agreement includes a growth incentive fee program, providing rebates to Antero Resources if quarterly volumetric targets are met, with $12 million in rebates for each of the three months ended September 30, 2022 and 2023, and $36 million for each of the nine months ended September 30, 2022 and 2023[48] Minimum Future Lease Cash Flows (in thousands): | Period | Amount | |:---|:---|\n| Remainder of year ending December 31, 2023 | $54,905 | | Year ending December 31, 2024 | $316,492 | | Year ending December 31, 2025 | $298,143 | | Year ending December 31, 2026 | $284,327 | | Year ending December 31, 2027 | $224,150 | | Thereafter | $382,435 | | Total | $1,560,452 | Disaggregated Revenue by Type of Service (in thousands): | Type of Service | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---|\n| Gathering—low pressure | $92,091 | $106,731 | $273,188 | $311,410 | | Gathering—low pressure fee rebate | $(12,000) | $(12,000) | $(36,000) | $(36,000) | | Compression | $52,364 | $62,903 | $155,462 | $182,858 | | Gathering—high pressure | $53,185 | $57,358 | $159,504 | $167,368 | | Fresh water delivery | $38,445 | $40,989 | $111,609 | $128,214 | | Other fluid handling | $24,617 | $25,526 | $67,673 | $80,755 | | Amortization of customer relationships (G&P) | $(9,271) | $(9,271) | $(27,814) | $(27,814) | | Amortization of customer relationships (Water) | $(8,397) | $(8,397) | $(25,190) | $(25,190) | | Total Revenue | $231,034 | $263,839 | $678,432 | $781,601 | (6) Property and Equipment Property and equipment, net, increased slightly due to additions to gathering systems and facilities and construction-in-progress, partially offset by depreciation Property and Equipment, Net (in thousands): | Item | December 31, 2022 | September 30, 2023 (Unaudited) | |:---|:---|:---|\n| Land | $31,668 | $31,668 | | Gathering systems and facilities | $3,281,872 | $3,328,513 | | Permanent buried pipelines and equipment | $601,347 | $633,113 | | Surface pipelines and equipment | $66,726 | $80,048 | | Heavy trucks and equipment | $5,157 | $5,157 | | Above ground storage tanks | $2,953 | $5,130 | | Construction-in-progress | $158,977 | $196,619 | | Total property and equipment | $4,148,700 | $4,280,248 | | Less accumulated depreciation | $(397,269) | $(497,694) | | Property and equipment, net | $3,751,431 | $3,782,554 | - In October 2022, the Company acquired Marcellus gas gathering and compression assets from Crestwood for $205 million, including 72 miles of pipelines and nine compressor stations (700 MMcf/d capacity)[68] - In December 2022, the Company acquired Utica compression assets from EnLink for $10 million, including four compressor stations (380 MMcf/d capacity)[69] (7) Long-Term Debt Total principal debt decreased from $3,382,000 thousand at December 31, 2022, to $3,276,400 thousand at September 30, 2023, primarily due to Credit Facility repayments Long-Term Debt (in thousands): | Item | December 31, 2022 | September 30, 2023 (Unaudited) | |:---|:---|:---|\n| Credit Facility | $782,000 | $676,400 | | 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 | $3,382,000 | $3,276,400 | | Unamortized debt premiums | $1,698 | $1,393 | | Unamortized debt issuance costs | $(22,416) | $(19,256) | | Total long-term debt | $3,361,282 | $3,258,537 | - The Credit Facility had an available borrowing capacity of $574 million as of September 30, 2023, with outstanding borrowings of $676 million and a weighted average interest rate of 7.04% (up from 6.17% at December 31, 2022)[73][76] - All Senior Notes (2026, 2027, 2028, 2029) are unsecured and fully and unconditionally guaranteed by Antero Midstream Corporation and its wholly-owned subsidiaries (excluding Issuers)[78][79][80][83][84] (8) Accrued Liabilities Accrued liabilities increased from $72,715 thousand at December 31, 2022, to $81,628 thousand at September 30, 2023, primarily due to higher accrued capital expenditures and interest expense Accrued Liabilities (in thousands): | Item | December 31, 2022 | September 30, 2023 (Unaudited) | |:---|:---|:---|\n| Capital expenditures | $16,597 | $25,164 | | Operating expenses | $11,118 | $11,519 | | Interest expense | $37,947 | $39,709 | | Ad valorem taxes | $5,661 | $3,509 | | Other | $1,392 | $1,727 | | Total accrued liabilities | $72,715 | $81,628 | (9) Equity-Based Compensation and Cash Awards Equity-based compensation expense increased for both the three and nine months ended September 30, 2023, due to increased annual equity awards under the AM LTIP - Equity-based compensation expense allocated from Antero Resources (AR LTIP) was fully amortized during the first quarter of 2023[91] Equity-Based Compensation Expense (in thousands): | Type of Award | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---|\n| Restricted stock units | $4,525 | $6,358 | $11,438 | $17,969 | | Performance share units | $833 | $1,741 | $1,938 | $4,525 | | Equity awards issued to directors | $195 | $250 | $650 | $681 | | Total expense | $5,553 | $8,349 | $14,026 | $23,175 | - As of September 30, 2023, unamortized equity-based compensation expense of $48 million related to unvested RSUs is expected to be recognized over a weighted average period of 2.0 years, and $14 million related to unvested PSUs over 2.1 years[97][100] (10) Cash Dividends The company declared and paid consistent cash dividends of $0.2250 per common share for each quarter in 2022 and 2023, along with fixed dividends for Series A Preferred Stock Cash Dividends Paid (in thousands, except per share data): | Period | Dividends | Dividends per Share | |:---|:---|:---|\n| Q4 2021 | $108,149 | $0.2250 | | Q1 2022 | $109,296 | $0.2250 | | Q2 2022 | $107,675 | $0.2250 | | Q3 2022 | $107,705 | $0.2250 | | Total 2022 | $433,375 | | | Q4 2022 | $108,364 | $0.2250 | | Q1 2023 | $110,607 | $0.2250 | | Q2 2023 | $107,900 | $0.2250 | | Total 2023 (YTD) | $327,284 | | - A cash dividend of $0.2250 per common share was declared for Q3 2023, payable on November 8, 2023[105] - Cash dividends of $138 thousand were declared for Series A Preferred Stock, payable on November 14, 2023, with $69 thousand accumulated in arrears as of September 30, 2023[105] (11) Equity and Earnings Per Common Share Details the preferred stock structure and reconciles basic to diluted weighted average shares outstanding, showing an increase in diluted shares and net income per share - The company has 10,000 shares of 5.5% Series A Non-Voting Perpetual Preferred Stock outstanding, which ranks senior to common stock regarding dividend and liquidation rights[106][109] Weighted Average Common Shares Outstanding (in thousands): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---|\n| Basic weighted average number of shares outstanding | 478,460 | 479,676 | 478,144 | 479,267 | | Add: Dilutive effect of RSUs | 769 | 1,670 | 1,003 | 1,401 | | Add: Dilutive effect of PSUs | — | 659 | 106 | 405 | | Add: Dilutive effect of Series A Preferred Stock | 1,089 | 835 | 1,089 | 835 | | Diluted weighted average number of shares outstanding | 480,318 | 482,840 | 480,342 | 481,908 | Net Income Per Share (in thousands, except per share amounts): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---|\n| Net income available to common shareholders | $83,876 | $97,682 | $243,036 | $270,926 | | Net income per share–basic | $0.18 | $0.20 | $0.51 | $0.57 | | Net income per share–diluted | $0.17 | $0.20 | $0.51 | $0.56 | (12) Fair Value Measurement The fair value of the company's Senior Notes is generally lower than their carrying value, reflecting market conditions, while other short-term items approximate fair value Fair Value and Carrying Value of Senior Notes (in thousands): | Senior Notes | December 31, 2022 Fair Value | December 31, 2022 Carrying Value | September 30, 2023 Fair Value | September 30, 2023 Carrying Value | |:---|:---|:---|:---|:---|\n| 2026 Notes | $556,985 | $545,416 | $553,190 | $546,320 | | 2027 Notes | $612,365 | $646,610 | $621,010 | $647,131 | | 2028 Notes | $601,575 | $644,776 | $613,730 | $645,467 | | 2029 Notes | $685,650 | $742,480 | $688,500 | $743,219 | | Total | $2,456,575 | $2,579,282 | $2,476,430 | $2,582,137 | - Fair values for Senior Notes are based on Level 2 market data inputs[117] - Carrying values of accounts receivable, accounts payable, and Credit Facility borrowings approximate fair value due to their short-term nature or variable interest rates[118] (13) Investments in Unconsolidated Affiliates The company holds a 50% equity interest in a joint venture with MarkWest and a 15% equity interest in Stonewall Gas Gathering LLC, with increased equity in earnings and distributions - The company has a 50% equity interest in a joint venture with MarkWest Energy Partners, L.P. for processing and fractionation assets in Appalachia[119] - The company also holds a 15% equity interest in Stonewall Gas Gathering LLC, which operates a 67-mile pipeline[119] Investments in Unconsolidated Affiliates (in thousands): | Item | December 31, 2022 | September 30, 2023 | |:---|:---|:---|\n| Balance as of December 31, 2022 | $652,767 | | | Additional investments | | $262 | | Equity in earnings of unconsolidated affiliates | | $77,825 | | Distributions from unconsolidated affiliates | | $(94,900) | | Balance as of September 30, 2023 | | $635,954 | (14) Contingencies Antero Treatment LLC prevailed in a lawsuit against Veolia Water Technologies, Inc., being awarded $280 million in damages, but Veolia has filed an appeal - Antero Treatment LLC filed suit against Veolia Water Technologies, Inc. for fraud and breach of contract related to the design and build of the Clearwater Facility[124][125] - On January 3, 2023, the Court found in favor of Antero Treatment, awarding $242 million in damages, plus pre- and post-judgment interest and reasonable costs and attorneys' fees[127] - An amended final judgment on May 3, 2023, awarded Antero Treatment $280 million in damages (including pre-judgment interest), with Veolia filing an appeal on May 26, 2023, and Antero Treatment filing a cross-appeal on June 9, 2023[127] (15) Reportable Segments The company operates in Gathering and Processing and Water Handling segments, both showing increased revenues and operating income for the three and nine months ended September 30, 2023 - The company's operations are organized into two reportable segments: Gathering and Processing, and Water Handling[129] Summarized Operating Results (Three Months Ended September 30, in thousands): | Metric | Gathering and Processing (2022) | Water Handling (2022) | Consolidated Total (2022) | Gathering and Processing (2023) | Water Handling (2023) | Consolidated Total (2023) | |:---|:---|:---|:---|:---|:---|:---|\n| Total Revenues | $176,369 | $54,665 | $231,034 | $205,721 | $58,118 | $263,839 | | Operating Income | $127,545 | $11,497 | $137,770 | $151,757 | $11,910 | $162,313 | | Equity in earnings of unconsolidated affiliates | $24,411 | — | $24,411 | $27,397 | — | $27,397 | | Additions to property and equipment | $58,742 | $15,378 | $74,120 | $31,019 | $14,267 | $45,286 | Summarized Operating Results (Nine Months Ended September 30, in thousands): | Metric | Gathering and Processing (2022) | Water Handling (2022) | Consolidated Total (2022) | Gathering and Processing (2023) | Water Handling (2023) | Consolidated Total (2023) | |:---|:---|:---|:---|:---|:---|:---|\n| Total Revenues | $524,340 | $154,092 | $678,432 | $597,822 | $183,779 | $781,601 | | Operating Income | $379,072 | $20,749 | $395,320 | $423,205 | $37,220 | $456,181 | | Equity in earnings of unconsolidated affiliates | $70,467 | — | $70,467 | $77,825 | — | $77,825 | | Additions to property and equipment | $190,407 | $45,747 | $236,154 | $90,175 | $39,850 | $130,025 | Summarized Total Assets (in thousands): | Segment | December 31, 2022 | September 30, 2023 (Unaudited) | |:---|:---|:---|\n| Gathering and Processing | $4,711,069 | $4,697,346 | | Water Handling | $1,079,297 | $1,060,290 | | Unallocated | $954 | $1,075 | | Total assets | $5,791,320 | $5,758,711 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial performance, market conditions, and operational trends, detailing revenue and expense fluctuations, capital resources, and liquidity Overview Antero Midstream is a growth-oriented midstream energy company primarily serving Antero Resources' production in the Appalachian Basin with gathering, compression, processing, and water handling assets - Antero Midstream is a growth-oriented midstream energy company focused on servicing Antero Resources' production and completion activity[141] - Assets include gathering pipelines, compressor stations, interests in processing and fractionation plants, and two independent water handling systems[141] Market Conditions and Business Trends Commodity prices decreased in 2023, but fixed-fee contracts mitigate direct impact, while the growth incentive fee program with Antero Resources is set to expire - Commodity prices for natural gas, NGLs, and oil decreased during the three and nine months ended September 30, 2023, compared to the same periods in 2022[142] - The growth incentive fee program with Antero Resources, which provides quarterly fee rebates based on low pressure gathering volumetric targets, expires on December 31, 2023[143][144] - Antero Resources earned $12 million in fee reductions for each of the three months ended September 30, 2022 and 2023, and $36 million for each of the nine months ended September 30, 2022 and 2023[145] - The Federal Reserve increased the federal funds interest rate by 5.25% between March 2022 and July 2023 to manage elevated inflation levels[146] Results of Operations The company experienced significant revenue growth in both segments due to increased throughput and CPI-based rate adjustments, despite rising operating and interest expenses Operating Data (Three Months Ended September 30): | Metric | 2022 | 2023 | Amount of Increase or Decrease | Percentage Change | |:---|:---|:---|:---|:---|\n| Gathering—low pressure (MMcf) | 271,569 | 305,676 | 34,107 | 13 % | | Compression (MMcf) | 257,025 | 300,967 | 43,942 | 17 % | | Gathering—high pressure (MMcf) | 257,757 | 269,986 | 12,229 | 5 % | | Fresh water delivery (MBbl) | 9,515 | 9,750 | 235 | 2 % | | Other fluid handling (MBbl) | 5,280 | 4,961 | (319) | (6)% | | Wells serviced by fresh water delivery | 18 | 15 | (3) | (17)% | | Processing—Joint Venture (MMcf) | 135,611 | 148,672 | 13,061 | 10 % | | Fractionation—Joint Venture (MBbl) | 3,287 | 3,680 | 393 | 12 % | - Total revenues increased by 14% to $264 million for the three months ended September 30, 2023, and by 15% to $782 million for the nine months ended September 30, 2023, primarily due to increased throughput volumes and CPI-based rate adjustments in both segments[155][176] - Direct operating expenses increased by 11% to $52 million for the three months and by 23% to $162 million for the nine months ended September 30, 2023, mainly due to acquired compressor stations, increased heavy maintenance, and higher water handling costs[162][183] - Depreciation expense decreased by $3 million for the three months ended September 30, 2023, due to the phased early retirement and repurposing of an underutilized compressor station, but increased by $3 million for the nine months due to acquired assets[165][186] - Interest expense increased by 15% to $55 million for the three months and by 20% to $165 million for the nine months ended September 30, 2023, driven by higher benchmark interest rates and increased Credit Facility borrowings[166][188] - Net income increased by 16% to $98 million for the three months and by 11% to $271 million for the nine months ended September 30, 2023, primarily due to higher revenues and equity in earnings from unconsolidated affiliates[167][191] - Adjusted EBITDA increased by 12% to $251 million for the three months and by 13% to $735 million for the nine months ended September 30, 2023, driven by higher revenues and distributions from unconsolidated affiliates[170][192] Capital Resources and Liquidity Liquidity is supported by operating cash flows and Credit Facility borrowings, with increased operating cash flows, decreased investing cash flows, and significantly increased financing cash outflows due to Credit Facility repayments - Capital resources and liquidity are provided by operating cash flows and available borrowings under the Credit Facility[193] Cash Flows (Nine Months Ended September 30, in thousands): | Metric | 2022 | 2023 | |:---|:---|:---|\n| Net cash provided by operating activities | $530,976 | $570,742 | | Net cash used in investing activities | $(215,956) | $(129,508) | | Net cash used in financing activities | $(315,020) | $(441,234) | - Net cash used in financing activities increased primarily due to net repayments on the Credit Facility of $106 million in 2023, compared to net borrowings of $18 million in 2022[199] - The company announced a revised 2023 capital budget range of $180 million to $200 million, a $15 million decrease, to support increased volumes from Antero Resources' drilling partnership[200] Capital Expenditures (in thousands): | Item | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | |:---|:---|:---|\n| Gathering systems and facilities | $42,579 | $98,303 | | Water handling systems | $14,692 | $40,893 | | Investments in unconsolidated affiliates | — | $262 | | Total capital expenditures | $57,271 | $139,458 | Non-GAAP Financial Measures Defines Adjusted EBITDA as a key non-GAAP financial measure used to assess financial and operating performance, providing a reconciliation to net income - Adjusted EBITDA is defined as net income before net interest expense, income tax expense, depreciation, impairment, accretion of asset retirement obligations, equity-based compensation, excluding equity in earnings of unconsolidated affiliates, amortization of customer relationships, loss on early extinguishment of debt, loss on settlement of asset retirement obligations, loss (gain) on asset sale, and including distributions from unconsolidated affiliates[202] - Adjusted EBITDA is used to assess financial performance, operating performance, and the viability of capital expenditure projects[203] Reconciliation of Adjusted EBITDA to Net Income (in thousands): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---|\n| Net income | $84,014 | $97,820 | $243,449 | $271,339 | | Interest expense, net | $47,835 | $55,233 | $137,540 | $165,245 | | Income tax expense | $30,332 | $36,657 | $84,798 | $97,422 | | Depreciation expense | $34,206 | $30,745 | $98,181 | $101,174 | | Impairment of property and equipment | — | — | $3,702 | — | | Accretion of asset retirement obligations | $50 | $45 | $178 | $133 | | Equity-based compensation | $5,553 | $8,349 | $14,026 | $23,175 | | Amortization of customer relationships | $17,668 | $17,668 | $53,004 | $53,004 | | Equity in earnings of unconsolidated affiliates | $(24,411) | $(27,397) | $(70,467) | $(77,825) | | Distributions from unconsolidated affiliates | $29,965 | $31,330 | $90,470 | $94,900 | | Loss on settlement of asset retirement obligations | — | — | $539 | $620 | | Loss (gain) on asset sale | $(2,092) | $467 | $(2,242) | $6,036 | | Adjusted EBITDA | $223,120 | $250,917 | $653,178 | $735,223 | Critical Accounting Policies and Estimates Refers to the 2022 Form 10-K for an expanded discussion of critical accounting policies and estimates, emphasizing reliance on management's judgments and assumptions - The preparation of financial statements requires estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses[207] - Actual results may differ from these estimates and assumptions[207] - Expanded discussion of significant accounting policies, estimates, and judgments is available in the 2022 Form 10-K[207] Item 3. Quantitative and Qualitative Disclosures about Market Risk Discusses the company's exposure to market risks, primarily commodity price risk, interest rate risk from its Credit Facility, and significant credit risk due to dependence on Antero Resources Commodity Price Risk Fixed-fee contracts largely shield the company from direct commodity price exposure, but fluctuations can indirectly impact Antero Resources' development program and production volumes - The company's gathering and compression and water services agreements with Antero Resources provide for fixed-fee and cost of service fee structures, aiming to avoid direct commodity price exposure[209] - Commodity price changes indirectly impact the company by affecting Antero Resources' development program and production, which in turn impacts the company's gathering, compression, and water handling volumes[209] Interest Rate Risk The company's primary interest rate risk stems from its Credit Facility's floating interest rate, where a 1.0% increase would result in an estimated $5 million increase in interest expense - Primary exposure to interest rate risk results from outstanding borrowings under the Credit Facility, which has a floating interest rate[210] - As of September 30, 2023, $676 million of borrowings were outstanding under the Credit Facility[210] - A 1.0% increase in the Credit Facility interest rate would have resulted in an estimated $5 million increase in interest expense for the nine months ended September 30, 2023[210] Credit Risk The company is highly dependent on Antero Resources as its primary customer, making it vulnerable to non-payment or non-performance, which could significantly impact revenues and operating results - The company is dependent on Antero Resources as its primary customer and expects to derive substantially all revenues from them for the foreseeable future[211] - Any event adversely affecting Antero Resources' production, drilling schedule, financial condition, or liquidity could adversely affect the company's revenues and operating results[211] - The company is subject to the risk of non-payment or non-performance by Antero Resources under their service agreements[212] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2023, at a reasonable assurance level[213] - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2023[214] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business, with specific details on current litigation provided in Note 14—Contingencies - The company's operations are subject to various legal proceedings and litigation arising in the ordinary course of business[215] - Insurance policies are maintained to protect against potential claims, but adequacy and future availability at economical prices are not assured[215] - Additional information on legal proceedings is provided in Note 14—Contingencies[215] Item 1A. Risk Factors Refers to the 2022 Form 10-K for a comprehensive discussion of business risks, stating no material changes have occurred, while acknowledging potential for additional, currently unknown risks - The company is subject to certain risks and hazards inherent to its business activities[216] - There have been no material changes to the risks described in the 2022 Form 10-K[216] - The company may experience additional risks and uncertainties not currently known or deemed immaterial[216] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company purchased 208 shares of common stock in July 2023 at an average price of $11.74 per share to satisfy tax withholding obligations related to employee equity awards Issuer Purchases of Equity Securities: | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Dollar Value of Shares that May Yet be Purchased Under the Plan | |:---|:---|:---|:---|:---|\n| July 1, 2023 – July 31, 2023 | 208 | $11.74 | — | $— | | August 1, 2023 – August 31, 2023 | — | — | — | $— | | September 1, 2023 – September 30, 2023 | — | — | — | $— | | Total | 208 | $11.74 | — | $— | - Shares purchased represent common stock transferred to the company to satisfy tax withholding obligations upon the vesting of employee equity awards[218] Item 5. Other Information This section states that there is no other information to report Item 6. Exhibits Lists all exhibits filed or furnished with the Quarterly Report on Form 10-Q, including corporate organizational documents, executive certifications, and iXBRL financial information - Exhibits include corporate organizational documents (Certificates of Conversion, Incorporation, Amendment, Bylaws, Designations), certifications from the CEO and CFO (Sarbanes-Oxley Sections 302 and 906), and iXBRL formatted financial information[221] SIGNATURES Signature Block The report is duly signed on behalf of Antero Midstream Corporation by Brendan E. Krueger, Chief Financial Officer, Vice President – Finance and Treasurer, on October 25, 2023 - The report was signed by Brendan E. Krueger, Chief Financial Officer, Vice President – Finance and Treasurer, on October 25, 2023[223]