Antero Midstream Corporation — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited results; amounts below are in millions of dollars unless stated otherwise. The company owns and operates gathering, compression, processing-related investments, and water-handling infrastructure, primarily serving Antero Resources in the Appalachian Basin.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $233.4 | $243.8 | $696.9 | $553.5 reported |
| Operating income (loss) | $151.8 | $(334.1) | $(232.6) | $(205.9) reported |
| Net income (loss) | $105.5 | $(289.5) | $(199.0) | $(210.6) reported |
| Adjusted EBITDA, non-GAAP | $228.6 | $217.6 | $647.2 | $626.2 pro forma |
| Operating cash flow | $185 for the quarter | $178 for the quarter | $546.9 | $429.9 |
The nine-month 2019 reported comparison is not like-for-like: Antero Midstream Partners was consolidated only from March 13, 2019. Management’s pro forma nine-month 2019 revenue was $757.8 million and Adjusted EBITDA was $626.2 million; these pro forma figures are illustrative, not actual reported results.
- Q3 revenue: Down 4% year over year. Gathering and processing revenue increased 14% to $180.9 million; water-handling revenue fell 38% to $52.5 million. Results include $12 million of low-pressure gathering fee rebates to Antero Resources.
- Profit and margins: Q3 operating income was $151.8 million and net income was $105.5 million, compared with substantial losses in Q3 2019, when Clearwater-related impairments were recorded. No comparable major impairment charge was recorded in Q3 2020. The nine-month 2020 net loss includes $575.5 million of goodwill impairment and $90.0 million of property and equipment impairment.
- Cash flow and investment: Nine-month operating cash flow was $546.9 million; investing cash outflow was $188.0 million, including $165.3 million of property and equipment additions and $24.8 million invested in unconsolidated affiliates. Financing cash outflow was $357.7 million. The filing reports $190 million of capital spending for the nine months, including $130 million expansion, $35 million maintenance, and $25 million Joint Venture investment.
- Debt and liquidity: September 30 cash was $2.4 million; long-term debt carrying value was $3.122 billion, representing $3.138 billion principal. The revolving facility had $2.13 billion of commitments and $1.188 billion drawn, with no letters of credit; the company said it was in compliance with financial covenants. The facility matures October 2022.
- Dividends and repurchases: Common dividend declared for Q3 was $0.3075 per share, payable November 12, 2020. The company paid $443.1 million in common and preferred dividends during the first nine months. No purchases were made under the $300 million repurchase program in Q3; approximately $149.8 million remained authorized at quarter-end.
Material changes and operating developments
- Q3 low-pressure, high-pressure, and compression throughput rose 13%, 13%, and 16%, respectively; compression volume averaged 2,821 MMcf/d. Fresh-water delivery volume fell 21%, and Clearwater treated-water volume was zero.
- Water-handling revenue and expenses declined following the Clearwater Facility’s September 2019 idling and lower fresh-water activity. The facility is expected to remain idled for the foreseeable future and incurred $2.5 million of care and maintenance costs in Q3.
- Antero Resources’ drilling and completion budget had been reduced approximately 34% from the start of 2020. The midstream company reduced its 2020 capital budget to $200–$210 million and reported $190 million spent through September.
- The gathering and compression agreement was extended through 2038. Antero Resources met volume targets for the first three quarters of 2020, receiving $36 million of fee reductions year to date.
- The company paid $125 million in January 2020 for contingent acquisition consideration; as of September 30, it did not expect further contingent consideration to be earned.
Outlook, risks, and contingencies
- Management expected operating cash flow, cash on hand, and available credit to cover working capital, capital spending, dividends, and planned repurchases for at least the next 12 months. Capital spending and shareholder returns may be adjusted as conditions warrant.
- COVID-19, commodity-market volatility, storage and takeaway constraints, and Antero Resources’ drilling plans could affect production, throughput, water volumes, cash flow, and asset values. The company reported no significant supply-chain interruptions and no material COVID-related reduction in throughput to date.
- Substantially all revenue is derived from Antero Resources, creating customer concentration and credit risk. Fixed-fee contracts limit direct commodity-price exposure, but lower prices can indirectly reduce customer activity and volumes.
- Borrowings under the revolving facility carry floating rates. A 1 percentage-point rate increase was estimated to raise interest expense by $8.7 million for the nine-month period.
- A consolidated lawsuit concerning Clearwater is pending against Veolia. Antero Treatment seeks at least $457 million in damages, or alternatively at least $230 million in restitution; Veolia seeks unspecified damages. Certain claims were dismissed in July 2020, other claims remain, and trial was set for November 29, 2021. The filing does not provide a clear estimate of the company’s potential recovery or exposure.
- The CARES Act generated a $55 million tax refund receivable; $39 million had been received by September 30, 2020.
Most important facts for investors to verify
- Whether Antero Resources’ production and development plans sustain gathering volumes and support future water-handling demand, especially amid storage constraints.
- Whether the $200–$210 million 2020 capital budget, dividend, and repurchase authorization remain consistent with cash generation and debt levels.
- The company’s debt covenant headroom, refinancing plans for the October 2022 revolving facility maturity, and exposure to variable interest rates.
- Assumptions and potential future effects of the 2020 goodwill and asset impairments, including the status of the Clearwater Facility and related Veolia litigation.
- Collection of the remaining CARES Act tax refund and the accuracy of non-GAAP Adjusted EBITDA, which excludes significant expenses and is not a substitute for GAAP results.