Antero Midstream Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative results are for Q1 2022. Balance-sheet comparisons are March 31, 2023 versus December 31, 2022. Amounts below are in millions unless stated otherwise.
Business context
Antero Midstream owns and operates gathering, compression and water-handling infrastructure, primarily serving Antero Resources in the Appalachian Basin. Substantially all revenue depends on Antero Resources, with services provided under long-term contracts. The company also holds interests in processing and fractionation ventures.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $218.5 | $259.5 | +19% |
| Operating income | $129.2 | $148.3 | +15% |
| Net income | $80.0 | $86.5 | +8% |
| Diluted earnings per share | $0.17 | $0.18 | +$0.01 |
| Adjusted EBITDA (non-GAAP) | $209.0 | $241.8 | +16% |
| Cash provided by operations | $184.7 | $182.7 | −1% |
| Cash used in investing | $84.1 | $42.2 | Lower outflow |
| Cash used in financing | $100.5 | $140.6 | Higher outflow |
Operating margin was approximately 57% (versus 59% in Q1 2022); net margin was approximately 33% (versus 37%). Adjusted EBITDA margin was approximately 93% (versus 96%). These are calculated from reported figures. The filing reports no cash and cash equivalents at quarter-end. Operating cash flow less reported additions to property and equipment of $43.0 million was approximately $139.8 million; this is a simple cash-flow measure, not a company-reported non-GAAP metric.
At March 31, total debt principal was $3.351 billion, compared with $3.382 billion at year-end; carrying value was $3.331 billion. The revolving credit facility had $751.1 million drawn and $499 million of available capacity under $1.25 billion of commitments. Its weighted-average rate increased to 6.64% from 6.17% at year-end. The company reported compliance with facility covenants. Current assets were $98.4 million and current liabilities $96.2 million. The company said its resources should cover working capital, capital spending, dividends and planned repurchases for at least 12 months.
Material changes and drivers
- Water-handling revenue increased 53% to $69.2 million, mainly from higher fresh-water delivery and other fluid-handling volumes and fees. Fresh-water delivery volumes rose 41%.
- Gathering and processing revenue increased 10% to $190.3 million. Low-pressure gathering volumes rose 8% and compression volumes rose 11%, reflecting additional wells and acquired infrastructure; high-pressure gathering volumes declined 3%.
- Direct operating costs rose 38% to $57.9 million, driven by acquired compressor stations, maintenance, and higher wastewater trucking, blending volumes and rates.
- Interest expense rose 23% to $54.6 million, primarily because of higher floating rates and borrowings associated with 2022 asset acquisitions. Depreciation rose 24% to $35.2 million, including costs from retiring an underused compressor station.
- General and administrative expense excluding equity compensation declined to $11.0 million from $15.1 million, mainly due to lower Veolia-related legal costs and lower allocations from Antero Resources. Equity compensation increased to $6.3 million from $2.8 million.
- Capital expenditures were $34 million for the quarter. The company announced a revised 2023 capital budget of $180–$200 million on April 26, including growth capital tied to expected volumes from Antero Resources’ drilling partnership.
Outlook, distributions and risks
Management said it did not expect significant throughput variability from commodity-price volatility, citing Antero Resources’ maintenance-capital plan and improved liquidity and leverage. Commodity prices still affect Antero Resources’ development and production and can therefore affect Antero Midstream’s volumes and cash flows. Inflation and supply-chain pressures could raise operating and capital costs; contract CPI adjustments mitigate some, but not all, inflation exposure.
The company declared a common dividend of $0.225 per share for Q1 2023, payable May 10, 2023, and a $138,000 preferred dividend payable May 15. It paid approximately $108.4 million in common dividends during the quarter. No share repurchases were made under its program in Q1; the program was authorized through June 30, 2023. The filing provides no specific earnings or revenue guidance.
A key exposure is customer concentration: Antero Resources is the primary customer and is expected to account for substantially all revenue for the foreseeable future. Other risks include its drilling and production plans, interest-rate exposure on floating-rate debt, regulation, inflation, operating hazards and the ability to fund capital needs. A 1 percentage-point rise in the credit-facility rate was estimated to increase quarterly interest expense by about $2 million.
Veolia litigation: Antero Treatment prevailed at trial on contract and fraud claims. A January judgment awarded $309 million including prejudgment interest, plus costs and attorneys’ fees to be determined; the court’s April 10, 2023 order identified an error and reduced damages by $27 million. An amended judgment had not yet been entered and will be subject to appeal. The filing does not provide a clear final recoverable amount or timing.
Most important facts for investors to verify
- Whether Antero Resources’ drilling and completion activity sustains the throughput and water volumes supporting Q1 revenue growth.
- How much of Q1’s growth translates into durable cash generation as operating costs, equity compensation, depreciation and interest expense rise.
- Progress on the revised $180–$200 million capital budget, and whether operating cash flow supports spending, debt reduction and dividends.
- Floating-rate debt costs, remaining credit-facility availability and covenant headroom.
- The amended Veolia judgment, appeal status, fees and any eventual cash recovery; do not treat the award as certain or collected.
- The expiration of the $12 million quarterly low-pressure gathering fee rebate program after 2023 and its effect on subsequent reported revenue.