Antero Midstream Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; financial statements are unaudited. Antero Midstream owns and operates gathering, compression, processing-related investments, and water-handling assets, primarily serving affiliated producer Antero Resources in the Appalachian Basin.
Financial performance
- Revenue: $279.1 million, up 7.5% from $259.5 million in Q1 2023. Gathering and processing revenue rose to $218.3 million from $190.3 million; water-handling revenue declined to $60.7 million from $69.2 million. Reported revenue includes $17.7 million of customer-relationship amortization in each period.
- Profit: Operating income was $166.3 million, up 12.1%; net income was $103.9 million, up 20.1%. Diluted EPS was $0.21 versus $0.18. Operating margin was approximately 59.6%, compared with 57.2% a year earlier.
- Cash flow: Operating cash flow was $210.6 million versus $182.7 million. Investing activities used $37.1 million, and financing activities used $147.4 million. Cash increased by $26.0 million to $26.1 million.
- Capital spending: The company reported $29.8 million of capital expenditures for the quarter. Its announced 2024 capital budget is $150 million to $170 million.
- Debt and liquidity: Long-term debt carrying value was $3.175 billion at quarter-end; principal totaled $3.198 billion. No borrowings or letters of credit were outstanding on the $1.25 billion revolving credit facility, leaving the full amount available. The company reported compliance with its credit-facility financial covenants.
- Dividends: Common dividend of $0.225 per share for Q1 was declared, payable May 8, 2024. Preferred-stock dividends of $137,500 were also declared; $68,750 was in arrears at March 31.
Material changes versus Q1 2023
- Gathering and compression volumes increased: low-pressure gathering rose 5%, compression 5%, and high-pressure gathering 7%. Management attributed much of the growth to 79 additional wells connected since March 2023.
- Gathering and processing revenue benefited from higher volumes and CPI-based fee increases, as well as the expiration at year-end 2023 of a gathering fee rebate program. The prior-year quarter included a $12 million rebate.
- Water-handling revenue fell 12%, mainly because of lower fresh-water delivery volumes and lower water-trucking activity. Fresh-water volumes declined 8%, and wells serviced by fresh-water delivery fell from 23 to 17.
- Direct operating expense declined 7%, while equity-based compensation rose from $6.3 million to $9.3 million. Interest expense declined 2% to $53.3 million; equity earnings from unconsolidated affiliates increased 13% to $27.5 million.
Outlook, risks, and unusual items
- Management expects operating cash flow, available revolver capacity, and capital-market access to fund working capital, capital expenditures, and expected quarterly dividends for at least the next 12 months. It expects no significant throughput variability from commodity-price volatility, citing Antero Resources’ improved liquidity and leverage; this remains dependent on the producer’s activity and financial condition.
- On January 16, 2024, the company issued $600 million of 6.625% senior notes due 2032 and used the net proceeds to repay revolving-credit borrowings. It also repurchased $2 million principal amount of its 2026 notes during the quarter.
- The board authorized a $500 million share-repurchase program in February. No shares were repurchased under the program through March 31; reported share transfers during the quarter were to satisfy employee-award tax withholding.
- A consolidated lawsuit concerning the Clearwater Facility remains on appeal. The trial court entered an amended judgment of $280 million in favor of Antero Treatment, plus costs and attorneys’ fees to be determined; Veolia appealed and Antero Treatment cross-appealed. The filing does not establish the outcome of the appeals.
- Substantially all revenue is derived from Antero Resources, creating customer-concentration and counterparty risk. Commodity prices affect the customer’s development plans and thus can affect Antero Midstream’s service volumes, despite predominantly fixed-fee contracts.
- Management cited inflation, interest rates, possible operating and capital-cost increases, supply-chain risks, regulation, weather and operational hazards, and litigation as risks. It reported no material change to the risk factors in its 2023 Form 10-K and stated disclosure controls were effective.
Investor verification priorities
- Track Antero Resources’ production, completion activity, liquidity, and ability to meet its contractual obligations, given the company’s dependence on this customer.
- Review the Clearwater Facility appeal, including potential recovery timing, final damages, and any related accounting treatment.
- Confirm the use of the $500 million repurchase authorization, dividend sustainability, and funding needs alongside the $150 million–$170 million capital budget.
- Monitor debt refinancing and interest-rate exposure, particularly the 2026 notes and the credit facility’s maturity provisions and covenants.
- Assess whether higher gathering volumes and earnings growth persist as water-handling activity, commodity conditions, and Antero Resources’ development plans change.