Antero Midstream Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; unaudited. Antero Midstream owns and operates gathering, compression, processing-related investments, and water-handling infrastructure, primarily serving affiliated producer Antero Resources.
Financial results and key metrics
Unless noted otherwise, amounts are in millions of dollars. Comparisons are with the corresponding 2020 period.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $232.8 | $219.7 | $456.9 | $463.4 |
| Operating income (loss) | $151.4 | $134.7 | $285.0 | $(384.4) |
| Net income (loss) | $80.2 | $88.4 | $163.7 | $(304.5) |
| Diluted EPS | $0.17 | $0.18 | $0.34 | $(0.63) |
| Adjusted EBITDA (non-GAAP) | $225.0 | $201.3 | $444.3 | $418.6 |
| Cash flow from operations | Not stated separately for Q2 | $360.4 | $388.4 |
- Q2 operating margin was approximately 65.0% and net margin 34.5%, versus approximately 61.3% and 40.3%, respectively, in Q2 2020.
- Q2 revenue rose 6%, led by gathering and processing revenue growth of 11% to $183.4 million; water-handling revenue fell 10% to $49.4 million. Q2 net income declined 9%, while Adjusted EBITDA increased 12%.
- For the first half, revenue declined about 1%; Adjusted EBITDA rose 6%. The net-income turnaround largely reflects the prior-year first-half $575.5 million goodwill impairment and $89.1 million property-and-equipment impairment. 2021 first-half impairment was $1.4 million.
- First-half investing cash outflow was $73.7 million and financing cash outflow was $286.6 million; cash increased by $38,000 to $678,000. Reported capital investment was $100.8 million for the first half.
- At June 30, current assets were $92.4 million and current liabilities $117.8 million. Long-term debt carrying value was $3.088 billion; principal totaled $3.114 billion. The revolving facility had $513.7 million drawn against $2.13 billion of commitments, approximately $1.62 billion undrawn, subject to facility terms.
Material changes, financing and capital returns
- On June 8, the company issued $750 million of 5.375% notes due 2029 and redeemed all $650 million of 5.375% notes due 2024 at 102.688% of par. The transaction produced a $20.7 million early-extinguishment loss. Facility borrowings declined by $99.8 million in the first half.
- Q2 interest expense rose 23% to $43.5 million; first-half interest expense rose 18% to $86.4 million, reflecting debt issued in late 2020 and the 2021 refinancing, partly offset by lower facility borrowings and the 2024-note redemption.
- First-half common dividends paid were $256.0 million, compared with $296.4 million in the prior-year period. The declared Q2 2021 common dividend was $0.225 per share, down from $0.3075 per share for Q2 2020.
- Management expects operating cash flow, cash, and available facility borrowings to cover working capital, capital expenditures, dividends, and planned repurchases for at least the next 12 months. No share repurchases were made under the public program in Q2.
Outlook, commentary and risks
- The approved 2021 capital budget is $240–$260 million, including about $65 million of growth capital. Antero Resources announced a $590 million 2021 drilling-and-completion budget and plans for 80–85 gross wells, including the effect of its drilling partnership.
- Antero Resources delivered low-pressure gathering volumes of 2,897 MMcf/d in Q2, below the first fee-reduction threshold of more than 2,900 MMcf/d; no growth-incentive rebate was earned in Q2 or the first half. The gathering agreement runs through 2038.
- Gathering and compression volumes improved modestly, but first-half fresh-water delivery volumes fell 27% and other fluid-handling volumes fell 24%, largely reflecting fewer completed wells and operational efficiencies. Management noted that reduced drilling or production could lower throughput and water-service revenue.
- Substantially all revenue is expected to remain dependent on Antero Resources. Risks include its production plans, financial condition and payment performance; commodity-price effects on customer activity; floating-rate debt; regulatory and operating risks; and COVID-19 or other disruptions. The company stated that COVID-19 had not significantly reduced throughput or disrupted supply chains as of the filing.
- The Clearwater wastewater facility remains idled and impaired. Litigation with Veolia includes the company’s claim seeking at least $457 million in damages and Veolia’s unspecified damages claim; trial was scheduled to begin January 24, 2022. The filing reports no material changes to the risk factors in the 2020 Form 10-K.
- The company reported compliance with credit-facility financial covenants at June 30, 2021 and effective disclosure controls. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether Antero Resources’ drilling, production and volumes support gathering growth and avoid future incentive-fee reductions.
- Whether water-handling revenue and completed-well activity stabilize after the first-half declines.
- Debt-service costs, refinancing needs and covenant headroom, including the October 2022 revolving-facility maturity.
- The sustainability of the $0.225 quarterly common dividend relative to cash generation, capital spending and debt obligations.
- Developments, potential recovery and timing in the Veolia/Clearwater litigation, and any related costs or operational consequences.
- Adjusted EBITDA is a company-defined non-GAAP measure; compare it with GAAP cash flow and net income, and review the filing’s reconciliation.