Kinetik Holdings Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The February 22 business combination brought BCP and the legacy Altus Midstream business together under Kinetik. Because the transaction was accounted for as a reverse merger, BCP is the accounting predecessor: 2021 results reflect BCP alone, while 2022 includes legacy Altus only from February 22. Year-over-year comparisons are therefore not fully like-for-like.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $257.2 million | $148.1 million |
| Operating income | $19.1 million | $31.6 million |
| Net income, including noncontrolling interests | $21.4 million | $18.1 million |
| Net income attributable to Class A shareholders | $3.9 million; $0.21 per diluted share | None reported |
| Adjusted EBITDA (non-GAAP) | $140.8 million | $118.6 million |
| Cash from operating activities | $98.4 million | $41.6 million |
| Capital expenditures for midstream infrastructure | $29.2 million | $19.8 million |
Revenue rose 74%, driven by higher gathered and processed volumes, increased sales volumes, and higher NGL and condensate prices. Product revenue increased 119% to $174.9 million; service revenue increased 19% to $80.4 million. Costs of sales rose 225% to $120.3 million. Revenue less costs of sales was approximately $137.0 million, or 53% of revenue, versus approximately $111.1 million, or 75%, in Q1 2021; this simple measure is affected by product mix, prices, and the acquisition-related scope change.
Operating income fell 40%, as operating costs increased faster than revenue, including higher product costs, electricity costs, and acquisition/integration expenses. Net income increased 18%, supported by a $16.6 million increase in equity-method earnings and a $4.5 million gain on redemption of preferred units. Adjusted EBITDA increased 19%; management attributed the increase partly to added pipeline interests, while noting that the 2022 figure includes acquisition-related adjustments and excludes expected synergies.
Balance sheet, debt, and liquidity
- At March 31, cash was $17.6 million, total assets were $6.01 billion, and total debt carrying value, net of deferred financing costs, was $2.95 billion. Debt fair value was approximately $2.98 billion.
- Available committed borrowing capacity was $269 million, up from $133 million at December 31, 2021. Current assets of $309.5 million were below current liabilities of $388.6 million.
- Operating cash flow was $98.4 million; investing cash outflow was $19.4 million and financing cash outflow was $80.1 million. Operating cash flow included substantial working-capital movements and distributions from equity-method investments.
- Debt increased principally with the transaction, including $657 million outstanding under the Partnership’s $800 million revolving facility. Much of the debt bears variable rates. The company reported covenant compliance at quarter-end.
Material changes, outlook, and risks
- The acquisition added midstream assets and equity interests in Gulf Coast Express, Shin Oak, and an increased interest in Permian Highway Pipeline. Pipeline Transportation adjusted EBITDA rose to $40.4 million from $15.3 million; Midstream Logistics adjusted EBITDA declined 3% to $102.9 million.
- Management planned a comprehensive refinancing in Q2 2022 to reduce exposure to rising rates and market volatility. It said operating cash flow, pipeline distributions, a reduced capital program, and the reinvestment agreement were expected to support 2022 capital needs, dividends, and preferred-unit redemptions. No quantitative full-year earnings or EBITDA guidance is provided in the supplied filing text.
- The company planned to integrate the Alpine High system with legacy BCP assets and expected synergies to be recognized over 2022. Q1 included $5.7 million of acquisition-related costs and $6.2 million of share-based compensation; management identified both as transaction-related expenses.
- Mandatory redemptions of preferred units require further cash payments. The company redeemed $60.7 million in Q1 and reported remaining mandatory-redemption liabilities of $136.1 million. Management stated it intended to redeem the preferred units by year-end 2022.
- After quarter-end, the board declared a $1.50 per-share Class A dividend and a $1.50 per-unit distribution, payable May 17, 2022. Certain holders were to reinvest 100% of 2022 distributions in newly issued Class A shares, creating potential dilution.
- Key risks include Permian Basin concentration, producer activity and throughput, commodity-price volatility, inflation and supply-chain constraints, higher interest rates, dependence on third-party pipelines and joint ventures, environmental and regulatory requirements, and cyber or operational disruptions. A 1 percentage-point increase in interest rates was estimated to raise quarterly consolidated interest expense by about $6.5 million.
- The company is pursuing collection of $19.7 million of receivables associated with Winter Storm Uri litigation; no allowance was recorded. Acquisition purchase-price allocation remained preliminary and uses significant Level 3 estimates.
Investor verification priorities
- Confirm completion, pricing, maturity, and covenant terms of the planned refinancing, and assess the company’s variable-rate debt exposure.
- Track post-acquisition operating performance and whether projected integration savings and synergies materialize.
- Review operating cash flow against working-capital changes, pipeline distributions, capital needs, dividends, and required preferred-unit redemptions.
- Monitor share issuance under the dividend reinvestment agreement and potential dilution, as well as the preferred units’ redemption and exchange terms.
- Follow the $19.7 million Winter Storm Uri receivable litigation and any revisions to the preliminary acquisition valuations.