Antero Midstream Corporation — Q1 2019 Form 10-Q
Business context and reporting period
The filing covers the quarter ended March 31, 2019. On March 12, Antero Midstream Corporation completed a simplification transaction, converting AMGP to a corporation and acquiring Antero Midstream Partners, which became a wholly owned subsidiary. The company provides gathering, compression, processing-related, water handling and treatment services, primarily for Antero Resources in the Appalachian Basin.
Because the acquisition was accounted for as a business combination, reported Q1 2019 results include Antero Midstream Partners only from March 13 onward; Q1 2018 reflects the former AMGP’s limited operations. The reported periods are therefore not directly comparable. The filing also presents illustrative pro forma results assuming the transaction occurred on January 1, 2018.
Financial performance and liquidity
| Metric | Q1 2019 reported | Pro forma Q1 2019 vs. Q1 2018 |
|---|---|---|
| Revenue | $54.1 million | $265.8 million vs. $221.2 million, up 20% |
| Net income | $9.6 million | $82.1 million vs. $51.0 million |
| Operating income | $10.6 million | $114.0 million vs. $81.6 million, up 40% |
| Adjusted EBITDA (non-GAAP) | Not presented as a reported-period figure in the cited discussion | $202.5 million vs. $160.3 million, up 26% |
| Operating cash flow | $69.6 million | Not presented |
On the pro forma figures, operating margin was approximately 42.9% in Q1 2019 versus 36.9% in Q1 2018; Adjusted EBITDA margin was approximately 76.2% versus 72.5%. These margins are calculated from the filing’s pro forma figures. Pro forma results are illustrative, rely on estimates and assumptions, and are not a forecast.
Reported investing cash outflow was $61.2 million, including $598.7 million cash consideration paid to unitholders, largely offset by $619.5 million cash received in the acquisition; the company also invested $65.7 million in unconsolidated affiliates and spent $16.0 million on property and equipment. Financing cash outflow was $9.3 million. Cash declined by $0.9 million to $2.0 million.
At March 31, cash and current assets were $2.0 million and $116.7 million, respectively, against current liabilities of $118.1 million. Debt was $1.1 billion under a $2.0 billion revolving facility, plus $652.6 million of 5.375% notes due 2024 and $653.3 million of 5.75% notes due 2027. Total debt carrying value, net of issuance costs, was $2.390 billion. The revolver’s weighted-average rate was 3.79%; the company reported compliance with its covenants. Nominal undrawn commitments were about $900 million, though covenant limits may constrain availability.
Changes, outlook and notable items
- Pro forma gathering and compression revenue rose 46%, supported by higher throughput and additional wells, lines and compressor stations. Water handling and treatment revenue fell 4%, primarily due to fewer wells receiving fresh-water delivery; treated-water services partially offset the decline.
- Pro forma interest expense increased 37% to $22.9 million, reflecting higher revolver borrowings and rates and the issuance of $650 million of 2027 notes. Pro forma Q1 2019 also included a $7.0 million impairment associated with decommissioning a third-party compressor station.
- The 2019 capital budget for Antero Midstream Partners is $750–$800 million, including approximately $710 million of expansion and $65 million of maintenance capital at the midpoint. Management expects operating cash flow, cash, revolver borrowings and potential capital-markets transactions to fund requirements, and said these resources should meet needs for at least the next 12 months. Capital spending may be adjusted with business conditions and Antero Resources’ development plans.
- The board declared a common dividend of $0.3025 per share for Q1, payable May 8, 2019, and preferred dividends totaling $98,000. The filing cautions that the board may change or suspend common dividends.
- A contingent acquisition liability of $118.0 million was recorded. Management expected to pay the $125 million milestone tied to delivery of at least 176 million barrels of fresh water through 2019, but did not expect to meet the separate 219.2 million-barrel threshold tied to an additional $125 million payment. The purchase-price allocation remained preliminary and included $1.135 billion of goodwill.
- Substantially all revenue is derived from Antero Resources. Lower commodity prices could reduce that customer’s activity and the company’s volumes; the company also faces customer credit and nonpayment risk and floating-rate exposure. A 1 percentage-point increase in the revolver rate was estimated to increase quarterly interest expense by $566,000.
The company reported no material litigation, no off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2019.
Important facts for investors to verify
- Use the pro forma statements—not reported GAAP year-over-year figures—for operating comparisons, and review their assumptions and reconciliation.
- Track Antero Resources’ drilling, production, financial condition and ability to meet contractual commitments, given the company’s customer concentration.
- Confirm revolver availability after covenant calculations and monitor debt, interest costs, refinancing needs and funding for the 2019 capital program and dividends.
- Monitor fresh-water delivery against both contingent-payment thresholds and the final purchase-price allocation, including goodwill and acquired-asset valuations.
- Assess whether throughput growth, water-service trends and planned expansion spending support sustainable cash generation and the declared dividend.