Antero Midstream Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. Unless otherwise noted, financial amounts are in USD millions. Antero Midstream operates gathering and processing and water-handling infrastructure, primarily for Antero Resources, which provides substantially all of its revenue.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $224.8 | $233.4 | $681.7 | $696.9 |
| Operating income (loss) | $141.8 | $151.8 | $426.8 | $(232.6) |
| Net income (loss) | $89.3 | $105.5 | $253.0 | $(199.0) |
| Diluted earnings (loss) per share | $0.19 | $0.22 | $0.53 | $(0.42) |
| Adjusted EBITDA | $219.5 | $228.6 | $663.8 | $647.2 |
| Cash from operating activities | Not provided for quarter | Not provided for quarter | $545.5 | $546.9 |
- Q3 revenue declined about 4%, operating income about 7%, and net income about 15% year over year. Approximate operating and net margins were 63% and 40%, respectively, versus 65% and 45% in Q3 2020.
- Nine-month revenue declined about 2%; adjusted EBITDA increased about 3%. The 2020 comparison included $575.5 million of goodwill impairment and $90.0 million of property impairment, contributing to the prior-period loss and making reported operating and net income comparisons less representative of underlying operations.
- Nine-month capital expenditures were approximately $156.9 million, including $2.1 million invested in unconsolidated affiliates. Cash used in investing activities was $157.4 million. Cash used in financing was $388.8 million, including $363.7 million of common-stock dividends.
- At September 30, 2021, cash was nil; current assets were $87.5 million and current liabilities $118.7 million. Long-term debt carrying value was $3.096 billion; principal debt was $3.121 billion. The company reported $520.7 million drawn under its revolving facility and compliance with applicable covenants.
- Operating cash flow was nearly flat year over year. Management attributed the comparison to lower water-handling revenue and tax refunds and higher interest costs, offset by stronger gathering and processing revenue and lower operating and idling costs.
Material changes and unusual items
- Q3 gathering and processing revenue was approximately $179.4 million, down from $180.9 million; water-handling revenue was $45.4 million, down from $52.5 million. Fresh-water delivery volumes fell 18% and other fluid-handling volumes fell 16% year over year. Gas gathering volumes also declined, partly due to fewer new wells and downtime at processing and fractionation facilities.
- Nine-month water-handling revenue fell 28%, primarily because fewer wells were completed and activity and volumes declined. Gathering and processing revenue rose 8%, helped by the absence of 2020 low-pressure gathering rebates and higher compression activity.
- Interest expense rose to $130.9 million for the first nine months, from $107.4 million. In June 2021 the company issued $750 million of 5.375% notes due 2029 and redeemed $650 million of 5.375% notes due 2024. The redemption generated a $20.7 million early-extinguishment loss.
- The common dividend was reduced from $0.3075 per share in Q4 2020 to $0.225 beginning Q1 2021. The board declared a $0.225 per-share dividend for Q3 2021, payable November 10, 2021.
- On October 26, 2021, after quarter-end, the company amended and restated its revolving facility, reducing lender commitments from $2.13 billion to $1.25 billion and extending maturity to October 2026, subject to an earlier maturity provision tied to outstanding 2026 notes.
Outlook, risks and contingencies
- Management said operating cash flow, available borrowings and capital-market access were expected to cover working capital, capital expenditures, dividends and repurchases for at least the next 12 months. The 2021 capital budget was $240 million to $260 million; reported spending through September was approximately $182 million including $2 million of Joint Venture investment.
- Antero Resources’ Q3 low-pressure gathering averaged 2,880 MMcf/d, below the 2,900 MMcf/d threshold for growth-incentive rebates. No rebates were earned in the first nine months of 2021. The gathering agreement’s initial term extends to 2038.
- Key risks include dependence on Antero Resources for substantially all revenue; producer drilling, production and credit conditions; throughput declines; interest-rate exposure on floating-rate borrowings; and COVID-19 variants, operational disruptions, regulatory, environmental and cybersecurity risks. The company reported no off-balance-sheet arrangements.
- The Clearwater Facility remains idled. In consolidated litigation, the company seeks at least $457 million from Veolia, while Veolia seeks, among other amounts, an approximately $26 million contract balance. Claims remained pending, with trial scheduled to begin January 24, 2022; the filing does not establish a resolution or recovery.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It said there were no material changes to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- Whether Antero Resources’ production and drilling activity stabilizes or grows, and the resulting gathering throughput and water-service volumes.
- Whether the decline in water-handling activity and Q3 processing-facility downtime persists, and the effect on revenue and cash generation.
- Debt-service capacity, floating-rate exposure, covenant headroom and liquidity following the October 2021 reduction in revolving commitments.
- Future dividend sustainability relative to operating cash flow, capital spending and debt requirements.
- Developments and potential financial exposure in the Veolia litigation, including the scheduled trial.
- Adjusted EBITDA is a non-GAAP measure; assess it alongside GAAP results and the filing’s reconciliation.