DT Midstream, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are primarily with Q1 2023. DT Midstream owns and operates natural-gas gathering, pipeline, and storage assets serving the Appalachian and Haynesville regions and related markets. Financial statements are unaudited.
Financial results and position
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Operating revenue | $240 million | $220 million |
| Operating income | $124 million | $110 million |
| Operating margin | 51.7% | 50.0% |
| Net income | $100 million | $84 million |
| Net income attributable to DT Midstream | $97 million | $81 million |
| Diluted EPS | $0.99 | $0.84 |
| Operating cash flow | $241 million | $244 million |
| Capital expenditures, including equity-investee contributions | $99 million | Not stated here |
Pipeline revenue rose to $107 million from $85 million, while Gathering revenue declined to $133 million from $135 million. Pipeline segment net income attributable to the company increased to $74 million from $57 million; Gathering segment income declined to $23 million from $24 million. The filing does not provide a consolidated net margin as a stated metric.
Cash and cash equivalents were $41 million at March 31, versus $56 million at year-end 2023. Long-term debt, net, was $3.067 billion; principal debt was $3.099 billion, including a $399 million variable-rate term loan. Short-term revolver borrowings were $55 million. The $1.0 billion revolver had $929 million net availability, and the company reported approximately $970 million of total available liquidity including cash. Covenant ratios were in compliance: debt service coverage 8.3x, net leverage 2.3x, and interest coverage 7.9x.
Material changes and drivers
- Revenue increased $20 million year over year, principally from Haynesville System (LEAP) expansion contracts, higher Stonewall volumes, higher Washington 10 storage rates, and new Michigan System transmission contracts.
- Operating income increased $14 million. Depreciation and amortization rose to $50 million from $43 million, while operation and maintenance expense declined to $54 million from $58 million.
- Net income attributable to the company increased $16 million; the effective tax rate fell to 24% from 32%, primarily because of state deferred-tax remeasurement effects recognized in 2023.
- Operating cash flow decreased $3 million, mainly due to lower dividends from equity-method investees. Investing cash outflow fell to $71 million from $216 million, primarily because of lower plant and equipment spending and higher investee distributions. Financing cash outflow was $185 million, compared with $6 million of financing cash inflow in Q1 2023, reflecting greater net revolver repayments and higher dividends.
- Sequentially, revenue was $240 million versus $244 million in Q4 2023, and attributable net income was $97 million versus $121 million. Management attributes some quarter-to-quarter segment expense and revenue movements to planned maintenance, volumes, MVC deficiency fees, and prior-period tax remeasurement.
Outlook, risks, and contingencies
- Management expects 2024 capital expenditures, including contributions to equity-method investees, of approximately $350 million to $435 million. Q1 spending was primarily for Ohio Utica Gathering, Blue Union Gathering, and LEAP expansions.
- Management expects regular dividends and targets long-term annual dividend growth of 5% to 7%, subject to Board approval, cash flows, capital needs, financial condition, and covenant compliance. A $0.735-per-share dividend was declared for payment in July 2024.
- Growth opportunities cited include further expansion at LEAP, Stonewall, Washington 10 storage, Blue Union Gathering, Appalachia Gathering, Tioga Gathering, and Ohio Utica Gathering. The filing provides no specific earnings or revenue guidance.
- Key risks include reliance on Southwestern Energy for a significant portion of revenue, changes in production and volumes, customer credit/default risk, interest rates, access to capital, environmental regulation, operational hazards, cybersecurity, and execution of expansion projects. Most revenue is supported by long-term firm-service contracts, which management says limits direct commodity-price exposure.
- Legal and environmental proceedings arise in the ordinary course; management does not expect reasonably possible losses to materially adversely affect the company. The company recorded a $13 million accrual for pipeline slope restoration. Surety-bond indemnification exposure was up to $31 million; a potential Vector credit-facility payout was $52 million, with funding considered remote. No guarantees of other parties’ obligations were outstanding.
- No goodwill impairment trigger was identified in the quarter, but future cash-flow revisions, market conditions, interest rates, or lower industry multiples could lead to impairment. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether LEAP and other expansion projects deliver expected contracted revenue and remain within budget and schedule.
- Southwestern Energy’s operating volumes, credit condition, and any effect on DT Midstream’s gathering and pipeline utilization.
- Cash generation, equity-investee distributions, planned 2024 capital spending, and the company’s ability to sustain dividend growth while meeting debt obligations.
- Floating-rate debt exposure and continued compliance with credit-agreement covenants.
- Changes in environmental compliance costs, slope-restoration estimates, legal matters, and goodwill valuation assumptions.