Antero Midstream Corporation — Q1 2022 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Antero Midstream owns and operates gathering, compression and water-handling infrastructure, primarily serving affiliate Antero Resources in the Appalachian Basin. Substantially all revenue is from Antero Resources.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $218.5 million | $224.1 million | Down 3% |
| Operating income | $129.2 million | $133.6 million | Down 3% |
| Net income | $80.0 million | $83.4 million | Down 4% |
| Diluted EPS | $0.17 | $0.17 | Unchanged |
| Adjusted EBITDA | $209.0 million | $219.3 million | Down 5% |
| Operating cash flow | $184.7 million | $165.7 million | Up 11% |
| Investing cash flow | $(84.1) million | $(27.7) million | Higher investment |
Operating margin was approximately 59.1% versus 59.6%; net margin approximately 36.6% versus 37.2%. The filing presents no separate gross-margin measure. Capital additions to property and equipment were $84.3 million in the cash-flow statement; management reported Q1 capital expenditures of approximately $95 million, including $78 million for gathering and compression and $17 million for water handling.
At March 31, 2022, total assets were $5.58 billion and total liabilities $3.32 billion. Long-term debt carrying value was $3.13 billion, representing $3.16 billion principal. Cash was zero; current assets of $80.3 million were below current liabilities of $139.1 million. The revolving facility had $693 million available, with $557 million drawn and a $1.25 billion commitment. The company reported compliance with its financial covenants.
Material changes versus Q1 2021
- Gas gathering volumes increased: low-pressure volumes rose 3% to 2,930 MMcf/d; compression rose 4% and high-pressure gathering 2%. A 3% CPI-based fee adjustment also supported service rates.
- Antero Resources earned a $12 million low-pressure gathering rebate after meeting the first quarterly volume threshold; it earned no rebate in Q1 2021.
- Water-handling revenue fell 6%, mainly as fresh-water delivery volume declined 16% amid fewer completed wells. Water-handling direct operating costs rose 12%, partly due to resumed Utica deliveries.
- Equity earnings from unconsolidated affiliates increased 12% to $23.2 million, while interest expense increased 3% to $44.3 million. Cash from operations improved mainly because working-capital cash use was lower; Q1 2021 also included a $17 million tax refund.
- Cash dividends to common stockholders were $108.1 million, versus $147.2 million in Q1 2021. The common dividend rate was $0.225 per share.
Outlook, risks and unusual items
- Management set a 2022 capital budget of $275 million to $300 million and said operating cash flow and available credit are expected to fund working capital, capital spending, dividends and planned share repurchases for at least the next 12 months. Capital spending may be adjusted to Antero Resources’ development plans and market conditions. The filing gives no specific revenue or earnings guidance.
- The board declared a $0.225-per-share common dividend for Q1, payable May 11, 2022. No repurchases were made under the share-repurchase program during the quarter.
- The gathering agreement’s growth incentive program runs through 2023; the Q1 rebate reduced reported gathering revenue. The agreement extends to 2038, and the water-services agreement’s initial term runs to 2035.
- A consolidated lawsuit with Veolia concerning the Clearwater wastewater facility remained unresolved after a February 2022 bench trial. Antero sought approximately $450 million in damages, or alternatively approximately $370 million; Veolia sought approximately $118 million. No final judgment had been rendered. The ultimate outcome and financial effect are not clear from the filing.
- Key exposures include dependence on Antero Resources for substantially all revenue, changes in its production and drilling activity, inflation and labor costs, floating-rate debt, and legal, regulatory, environmental and operational risks. A 1 percentage-point increase in the credit-facility rate was estimated to add about $1 million of quarterly interest expense.
Important facts for investors to verify
- Whether Antero Resources’ production and drilling plans sustain gathering volumes and whether future growth-incentive rebates reduce revenue.
- Progress against the $275 million–$300 million capital budget, cash generation after capital spending and dividends, and use of revolving-credit capacity.
- Debt maturities, floating-rate borrowing costs, covenant headroom and the refinancing implications of the facility’s maturity provisions.
- Developments and potential financial consequences of the Veolia litigation.
- Whether affiliate concentration, water-handling activity and inflationary operating costs affect future margins and cash flows.