Antero Midstream Corporation — Q1 2021 Form 10-Q
Business context and reporting period. The filing covers the unaudited three months ended March 31, 2021, compared with Q1 2020. Antero Midstream owns and operates gathering, compression, processing-related investments, and water-handling assets, primarily serving affiliated producer Antero Resources in the Appalachian Basin. Substantially all revenue comes from Antero Resources.
Financial performance and position
- Revenue: $224.1 million, down 8% from $243.7 million. Gathering and processing segment revenue was $175.9 million; water-handling segment revenue was $48.2 million.
- Profitability: Operating income was $133.6 million and net income was $83.4 million, or $0.17 per diluted share. Adjusted EBITDA, a non-GAAP measure, was $219.3 million, up 1%. Operating margin was approximately 59.6% of revenue; Adjusted EBITDA margin was approximately 97.8%.
- Cash flow and investment: Operating cash flow was $165.7 million; investing cash outflow was $27.7 million and financing cash outflow was $138.4 million. Property and equipment additions were $28.4 million. Cash at quarter-end was $0.3 million.
- Debt and liquidity: Long-term debt carrying value was $3.10 billion; principal debt was $3.12 billion. The revolving credit facility had $625 million drawn against $2.13 billion of lender commitments, and the company reported compliance with its financial covenants. Current assets of $91.2 million exceeded current liabilities of $79.8 million.
- Capital returns: The company paid $147.2 million in common dividends during the quarter, relating to the prior quarter. It subsequently declared a $0.225-per-share common dividend for Q1 2021, payable May 12, 2021.
Material changes versus Q1 2020
- Revenue fell $19.6 million, as gathering and processing revenue growth was more than offset by lower water-handling revenue. Gathering and compression throughput rose 3%–8% across reported categories; fresh-water delivery volume fell 43% and other fluid-handling volume fell 29%.
- Gathering and processing revenue increased 14%, supported by higher throughput and the absence of the prior-year $12 million low-pressure gathering rebate. Antero Resources did not meet the Q1 2021 volume threshold for a rebate.
- Water-handling revenue declined 46%, mainly because fewer wells were completed and operational efficiencies reduced certain cost-plus service billings.
- Net income improved from a $392.9 million loss to $83.4 million income. The prior-year loss included $575.5 million of goodwill impairment and $89.1 million of property impairment; Q1 2021 impairment was $1.4 million. The prior-year comparison also included a $144.8 million income-tax benefit, versus $28.0 million of tax expense in Q1 2021.
- Operating cash flow increased $18.7 million, while property and equipment additions declined substantially from the prior-year quarter. Interest expense rose to $42.9 million from $37.6 million, primarily reflecting the $550 million 7.875% notes issued in November 2020.
Outlook, commentary, and risks
- The 2021 capital budget is $240 million–$260 million, including approximately $65 million of growth capital. The company reported about $30 million of capital expenditures in Q1.
- Management said operating cash flow, cash, credit-facility availability, and capital-market access are expected to fund working capital, capital spending, dividends, and planned repurchases for at least the next 12 months. This is an expectation, not a guarantee.
- Antero Resources’ announced 2021 drilling and completion program includes three rigs and 80–85 gross wells, substantially on acreage dedicated to Antero Midstream. Lower commodity prices or reduced producer activity could reduce throughput, revenue, and cash flow.
- The company is highly dependent on Antero Resources as its principal customer; customer production, financial condition, payment, or development-plan changes could materially affect results. Floating-rate credit-facility borrowings create interest-rate exposure.
- The Clearwater Facility remains idled. In consolidated litigation, Antero Treatment seeks at least $457 million from Veolia, citing the facility’s recorded impairment; Veolia seeks damages in an unspecified amount. Trial was scheduled to begin November 29, 2021. The filing does not provide a clear estimate of the litigation’s ultimate outcome or any potential recovery.
- The company extended its $300 million share-repurchase authorization through June 30, 2023; it made no program repurchases in Q1. COVID-19 had not significantly disrupted operations or throughput as of the filing, but management noted continuing uncertainty.
Important facts for investors to verify
- Whether Antero Resources’ drilling, production, and throughput plans support the expected midstream volumes and the capital budget.
- Whether lower water-handling activity and continued dependence on one primary customer affect cash generation and distributions.
- Debt-maturity and refinancing plans, covenant headroom, and exposure to variable interest rates, particularly with the credit facility maturing in October 2022.
- The status, potential financial impact, and any subsequent developments in the Veolia litigation concerning the Clearwater Facility.
- Dividend sustainability against operating cash flow, capital expenditures, debt service, and any share repurchases; note the declared common dividend decreased from $0.3075 to $0.225 per share.