DT Midstream, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2021. The statements are unaudited and presented on a carve-out basis from DTE Energy; they may not reflect all costs of operating as a standalone company. DTE completed the spin-off on July 1, 2021, after quarter-end.
Business and financial results
DT Midstream owns and operates natural gas pipeline, storage and gathering assets, with Pipeline and Gathering segments serving U.S. and Canadian markets.
| Metric ($ millions, except per-share data) | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | 208 | 174 | 405 | 343 |
| Operating income | 86 | 100 | 186 | 196 |
| Net income | 71 | 73 | 152 | 147 |
| Net income attributable to DT Midstream | 68 | 71 | 146 | 142 |
| Diluted EPS | $0.70 | $0.73 | $1.51 | $1.47 |
| Operating cash flow | Not separately stated | Not separately stated | 328 | 297 |
| Plant and equipment expenditures | Not separately stated | Not separately stated | 60 | 346 |
Q2 revenue increased year over year, while operating income and attributable net income declined. For the first half, revenue and attributable net income rose, but operating income fell. Q2 Pipeline revenue was $75 million versus $57 million; Gathering revenue was $133 million versus $117 million. Attributable segment income was $44 million for Pipeline and $24 million for Gathering, compared with $37 million and $34 million, respectively, a year earlier.
Cash, debt and liquidity
- Cash was $37 million at June 30, 2021, versus $42 million at December 31, 2020. First-half operating cash flow was $328 million; net investing cash flow was $201 million, including $263 million collected on a DTE Energy receivable. Financing cash outflow was $534 million.
- At June 30, long-term debt had a carrying value of $3.037 billion and principal of $3.1 billion: $2.1 billion of senior notes and a $1.0 billion variable-rate term loan. The notes mature in 2029 and 2031; the term loan in 2028. The term loan rate is LIBOR plus 2.00%, subject to a 0.50% LIBOR floor.
- The company also entered a $750 million revolving credit facility. It reported approximately $754 million of available liquidity as of July 1, 2021. A $25 million revolver borrowing on July 1 was repaid August 2. Financial covenants begin in Q3 2021.
Material changes and unusual items
- Revenue growth reflected Blue Union and LEAP assets entering service in 2020, as well as higher Gathering revenue from Blue Union and AGS. Pipeline revenue benefited from LEAP; lower storage revenue partly offset the Q2 increase.
- Q2 results included a $19 million loss on a note receivable tied to Utica shale assets, following lower-than-expected volumes and revised forecasts. The company stopped accruing interest on the note and classified it as an internal grade 3 receivable; further losses could result from lower production or commodity prices.
- Separation-related costs increased operating and maintenance expense. The company reported $16 million of corporate allocations in Q2, including approximately $9 million of separation transaction costs. It expects additional direct transaction costs in Q3.
- In June, debt proceeds were used to repay DTE Energy borrowings, settle related-party balances and pay DTE Energy a one-time $501 million special dividend. On July 1, DTE distributed all DT Midstream shares to its shareholders; DTE no longer owns the company.
Outlook, risks and contingencies
- Management expected 2021 cash from operations of $620 million to $680 million and capital expenditures plus contributions to equity-method investees of $205 million to $230 million. It described a strategy of disciplined capital deployment, long-term firm customer contracts and growth opportunities leveraging existing assets.
- The company expects to pay regular dividends, subject to board approval and financial conditions. On August 5, the board declared a quarterly dividend of $0.60 per share, payable October 15, 2021.
- DT Midstream committed to a net-zero carbon emissions goal by 2050. Environmental regulation, pipeline and operating hazards, changing customer production, commodity and interest-rate movements, and access to capital are among the stated risks.
- Several key customers are non-investment grade; the company identifies customer default or reduced production as a potential material risk. COVID-19 had not materially affected results as of the filing, but future effects remained uncertain.
- Transition services from DTE may continue for up to 24 months. Other risks include separation execution, tax treatment of the spin-off, and establishing standalone functions. Legal matters were not expected to materially adversely affect the company; accrued slope-restoration liabilities were $21 million.
Important facts for investors to verify
- Whether the expected standalone costs, including transition-service and separation expenses, affect margins after the spin-off.
- Performance and collectability of the Utica-related note receivable, and whether further impairments are recorded.
- Compliance with new debt covenants, exposure to LIBOR on the $1.0 billion term loan, and refinancing or repayment needs.
- Delivery of the 2021 operating-cash-flow and capital-investment outlook, and the sustainability of the declared dividend.
- Customer credit quality and volumes, including developments affecting key producer customers and the announced Southwestern Energy–Indigo transaction.