Antero Midstream Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results. Antero Midstream owns and operates Appalachian Basin gathering, compression, processing investments and water-handling infrastructure, serving primarily Antero Resources.
Financial performance
Q3 2023 (year-over-year): Revenue was $263.8 million, up 14%; operating income was $162.3 million; net income was $97.8 million, up 16%; and diluted EPS was $0.20 versus $0.17. Adjusted EBITDA, a non-GAAP measure, was $250.9 million, up 12%.
First nine months of 2023: Revenue was $781.6 million, up 15%; operating income was $456.2 million; net income was $271.3 million, up 11%; diluted EPS was $0.56 versus $0.51. Adjusted EBITDA was $735.2 million, up 13%.
Cash flow and investment: Nine-month operating cash flow was $570.7 million, compared with $531.0 million in 2022. Investing activities used $129.5 million, versus $216.0 million; financing activities used $441.2 million, including $326.9 million of common dividends and $105.6 million of net credit-facility repayments. Capital expenditures and affiliate investment totaled $139.5 million. Cash and cash equivalents were zero at September 30.
Debt and liquidity: Long-term debt carrying value was $3.259 billion; principal totaled $3.276 billion. Credit-facility borrowings were $676.4 million at a 7.04% weighted-average rate, with $574 million of available capacity under the $1.25 billion facility. The company reported covenant compliance. Current assets of $95.5 million were below current liabilities of $110.6 million.
Other metrics: Q3 operating margin was approximately 61.5% and net margin approximately 37.1%, calculated from reported revenue and income. The common dividend was $0.225 per share for the quarter, declared payable in November.
Material changes and management commentary
- Q3 gathering and processing revenue rose 17% and water-handling revenue rose 6%; nine-month increases were 14% and 19%, respectively. Higher throughput, annual CPI-based fee increases, and assets acquired in late 2022 contributed. Q3 low-pressure gathering and compression volumes increased 13% and 17% year over year.
- Nine-month direct operating costs rose 23%, and interest expense rose 20%, reflecting acquired compressor stations, higher maintenance and water-service costs, and higher floating benchmark rates and facility borrowings. Equity-based compensation expense also increased.
- Management said substantially all revenue is under fixed-fee or cost-of-service arrangements, limiting direct commodity-price exposure. Commodity prices nevertheless affect Antero Resources’ development activity and, indirectly, Antero Midstream’s volumes. Management did not expect significant throughput variability from price volatility, citing Antero Resources’ improved liquidity and leverage.
Outlook, risks and contingencies
- The 2023 capital budget was revised to $180 million–$200 million. Management expects operating cash flow and available credit to fund working capital, capital expenditures and expected dividends for at least the next 12 months.
- The gathering-agreement growth-incentive rebate program ends December 31, 2023. Antero Resources earned a $12 million quarterly rebate in Q3; the remaining 2023 rebate depends on volume thresholds.
- A 1 percentage-point increase in the floating credit-facility rate was estimated to add about $5 million to nine-month interest expense. The company does not currently hedge this exposure.
- Antero Resources is the primary customer and accounts for substantially all revenue, creating counterparty and concentration risk. Other cited risks include customer drilling and production levels, inflation, supply-chain or regulatory changes, and operating hazards.
- In the Clearwater Facility dispute, the court entered an amended $280 million judgment in favor of Antero Treatment, including prejudgment interest through April 30, 2023, with costs and attorneys’ fees to be determined separately. Veolia appealed and Antero Treatment cross-appealed. The filing does not provide a clear outcome or timing for the appeals.
- No formal earnings or volume guidance is provided in the supplied filing text. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Antero Resources’ drilling plans and financial condition support expected throughput and continued payments under the service agreements.
- Credit-facility rates, available borrowing capacity, covenant headroom and the schedule for refinancing or repaying debt.
- Actual 2023 capital spending versus the $180 million–$200 million budget and the sustainability of the dividend relative to cash generation.
- Developments, collectability and any financial-statement treatment of the Clearwater judgment and related appeals.
- Adjusted EBITDA reconciliation and limitations: it is non-GAAP and should be considered alongside GAAP net income and cash flow.