Antero Midstream Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Amounts are in U.S. dollars; financial figures below are in millions unless stated otherwise.
Business context
Antero Midstream owns and operates gathering, compression, processing-related and water-handling infrastructure, primarily serving Antero Resources in the Appalachian Basin. Substantially all revenue comes from Antero Resources, creating significant customer concentration.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $231.0 | $224.8 | $678.4 | $681.7 |
| Operating income | $137.8 | $141.8 | $395.3 | $426.8 |
| Net income | $84.0 | $89.3 | $243.4 | $253.0 |
| Diluted earnings per share | $0.17 | $0.19 | $0.51 | $0.53 |
| Adjusted EBITDA (non-GAAP) | $223.1 | $219.5 | $653.2 | $663.8 |
- For the third quarter, revenue rose 3% and Adjusted EBITDA rose 2%, while net income fell 6%. Water-handling revenue increased 21%; gathering and processing revenue decreased 2%, including a $12 million customer rebate.
- For the first nine months, revenue decreased 1%, net income decreased 4%, and Adjusted EBITDA decreased 2%. Antero Resources earned $36 million of gathering-fee rebates during the period under the growth incentive program.
- Operating cash flow was $531.0 million for the first nine months, compared with $545.5 million a year earlier. Investing activities used $216.0 million; financing activities used $315.0 million. Cash was zero at both the beginning and end of the 2022 period.
- At September 30, total debt carrying value was $3.143 billion; principal outstanding was $3.165 billion. The revolving facility had $685 million of available capacity, and its $565 million of borrowings carried a 4.81% weighted-average rate, versus 1.81% at year-end 2021. The company reported compliance with its financial covenants.
- Current assets were $80.8 million and current liabilities were $106.4 million. Total assets were $5.564 billion and stockholders’ equity was $2.212 billion.
- The company paid $325.1 million in common-stock dividends during the first nine months and declared a Q3 common dividend of $0.225 per share, payable November 9, 2022.
Material changes and notable items
- Direct operating costs increased 18% in Q3 and 11% year to date, reflecting higher throughput and costs including fuel, labor, chemicals and maintenance. Depreciation increased 24% in Q3 and 21% year to date, partly due to early retirement of an underutilized compressor station.
- Higher water-handling revenue, CPI-linked fee increases and additional wells supported activity and revenue. Gathering and compression volumes were modestly higher; Q3 fresh-water and other fluid-handling volumes rose 14% and 22%, respectively.
- Interest expense increased 7% in Q3 and 5% year to date, in part from higher floating rates and facility borrowings. Year-to-date 2021 results included a $20.7 million loss on early debt extinguishment; there was no comparable charge in 2022.
- On October 25, 2022, after quarter-end, the company acquired Marcellus gathering and compression assets from Crestwood for $205 million cash, funded with revolving-credit-facility borrowings. The assets include 72 pipeline miles and about 700 MMcf/d of compression capacity; current throughput was reported at about 200 MMcf/d.
Outlook, risks and contingencies
- Management’s 2022 capital budget was $275 million to $300 million and was unchanged as of September 30 despite inflation. Management expected operating cash flow and available facility borrowings to cover working capital, capital spending, dividends and planned share repurchases for at least the next 12 months.
- Management said its contracts are largely fixed-fee or cost-of-service, limiting direct commodity-price exposure, but Antero Resources’ production and development plans affect the company’s volumes and cash flows. The company expects commodity prices to remain volatile and noted potential inflation, supply-chain, interest-rate and broader economic pressures.
- Customer concentration and the risk of Antero Resources’ non-payment, reduced activity or production changes are key exposures. A 1 percentage-point increase in the facility rate was estimated to increase nine-month interest expense by about $4 million.
- A consolidated lawsuit concerning the Clearwater wastewater facility remains unresolved. Antero Treatment sought approximately $450 million in project-cost damages, or approximately $370 million under alternative claims; Veolia sought approximately $118 million. No final judgment had been rendered as of the filing.
- The company reported no material changes to the risk factors in its 2021 Form 10-K. It stated that disclosure controls were effective and that there were no material changes to internal control over financial reporting in the quarter.
Important facts for investors to verify
- Whether Antero Resources’ drilling, production and volumes support expected utilization, and how the remaining gathering-fee rebates through 2023 affect realized revenue.
- The acquired assets’ actual throughput, integration costs and contribution to cash flow, alongside additional debt and floating-rate exposure.
- Capital spending, operating-cost and depreciation trends, including the compressor-station retirement and reuse plans.
- The outcome and potential financial impact of the Veolia litigation and any related Clearwater Facility obligations.
- Dividend and repurchase capacity relative to operating cash flow, debt covenants, facility availability and future interest costs. Adjusted EBITDA is a non-GAAP measure and should be assessed alongside GAAP results and cash flows.