Kinetik Holdings Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The filing reports unaudited results. Kinetik is a Permian Basin midstream company providing gathering, processing, treating, transportation, crude oil and water services, and holding interests in pipeline ventures.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $335.6 million | $135.8 million | $592.8 million | $283.9 million |
| Operating income | $40.6 million | $0.6 million | $59.7 million | $32.2 million |
| Net income (loss), including noncontrolling interests | $131.4 million | $(15.4) million | $152.8 million | $2.8 million |
| Net income attributable to Class A shareholders per share | $0.06 diluted | Not applicable | $0.16 diluted | Not applicable |
| Adjusted EBITDA (non-GAAP) | $207.9 million | $87.7 million | $348.7 million | $206.3 million |
| Operating cash flow | Not stated separately | Not stated separately | $268.9 million | $94.2 million |
| Capital expenditures for property and equipment | Not stated separately | Not stated separately | $71.4 million | $39.4 million |
- Q2 service revenue was $102.1 million and product revenue was $229.7 million. Management attributed the increase primarily to higher commodity prices, increased gathered and processed volumes, and greater NGL and condensate sales.
- Q2 operating costs included $152.7 million of cost of sales, $35.3 million of operating expense, $26.0 million of general and administrative expense, and $66.6 million of depreciation and amortization.
- At June 30, cash was $5.3 million; debt was $2.971 billion net of issuance costs, with $1.25 billion of committed revolver capacity undrawn. Total assets were $6.00 billion.
- Six-month cash used in investing was $69.1 million; cash used in financing was $213.3 million. Cash declined from $18.7 million at year-end 2021 to $5.3 million.
Changes versus the prior comparable period
- Comparisons are not like-for-like: the February 22, 2022 business combination was accounted for as a reverse merger, with BCP as accounting acquirer. 2021 reported results reflect BCP only; 2022 includes ALTM legacy operations from the closing date onward.
- The transaction expanded the Pipeline Transportation segment, including additional interests in Permian Highway Pipeline and investments in Gulf Coast Express and Shin Oak, and added midstream operations. Management cited these additions as a major contributor to revenue, earnings, and EBITDA growth.
- Commodity prices and product mix also affected results. Q2 NGL and condensate sales volumes rose 297%, while natural gas residue sales volumes fell 42%; management said plants ran in recovery rather than rejection for most of the quarter.
- G&A rose substantially, reflecting share-based compensation and acquisition and integration costs. Operating expenses also increased, including from acquired operations, higher electricity costs, and labor.
Liquidity, outlook, risks, and unusual items
- On June 8, Kinetik completed a refinancing: $1.0 billion of 5.875% sustainability-linked notes due 2030, a $2.0 billion unsecured term loan due 2025, and a $1.25 billion unsecured revolver due 2027. Proceeds and other funds repaid prior credit facilities. The company reported covenant compliance at June 30.
- Management expected operating cash flow, pipeline distributions, and a reduced capital program to cover planned capital spending and dividends, while noting continued monitoring of commodity volatility, throughput, and pipeline utilization. No specific full-year financial guidance is provided in the supplied filing text.
- Management expects the Diamond Cryogenic complex expansion to reach 720 MMcf/d by the end of Q1 2023. Delaware Link was expected to enter commercial service in 2023. Permian Highway Pipeline approved an expansion targeting November 2023 service, with capacity rising from 2.1 to 2.65 Bcf/d.
- Net income includes an $88.6 million six-month unrealized gain on the Preferred Unit embedded derivative and a $28.0 million debt-extinguishment loss. The derivative gain is a fair-value item, not operating cash generation; it materially affects reported GAAP earnings.
- In July 2022, the company redeemed all remaining Preferred Units and PIK units for $492.2 million. It also declared a $0.75-per-share Class A dividend and $0.75-per-unit distribution, payable August 17, 2022. The filing does not specify the funding source for the July redemption.
- Risks include commodity-price-driven producer activity and volumes, inflation and supply-chain constraints, floating-rate debt exposure, customer credit risk, and integration execution. Management estimated a 1 percentage point rate increase would add about $5.1 million to quarterly interest expense on a pro forma basis.
- The company is litigating to collect $19.6 million of receivables related to Winter Storm Uri and has not recorded an allowance. It reported no environmental claims expected to materially affect its financial position and no accruals for loss contingencies at quarter-end.
- The 2022 sustainability targets are linked to financing costs; failure to meet targets may increase interest rates under the notes or credit agreements. The filing also notes registration of up to $400 million of securities and 107.6 million shares for potential sale by named selling stockholders.
Key facts for investors to verify
- How much of revenue and EBITDA growth reflects acquired operations, commodity prices, volumes, or recurring organic improvement, given the non-comparable periods.
- Cash available after the $492.2 million July Preferred Unit redemption, and the subsequent debt, liquidity, and dividend position.
- Exposure to rising SOFR and other variable rates, including actual borrowing mix, interest costs, and covenant headroom.
- Whether integration savings and planned expansions meet timing and cost expectations, and the extent of remaining capital commitments.
- Outcome and collectability of the $19.6 million Winter Storm Uri receivables dispute, and potential dilution or market overhang from registered selling-stockholder shares and outstanding warrants.