Business context and reporting period
This summary covers the quarter ended March 31, 2021. The supplied filing is Altus Midstream Company’s Form 10-Q, not a filing under the requested company name, Kinetik Holdings Inc. Altus owned Permian Basin gathering, processing and transmission assets, and equity interests in four pipeline ventures. Most midstream service revenue came from affiliate Apache Corporation.
Financial and operating results
Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $34.1 | $40.9 |
| Operating income | $13.0 | $18.7 |
| Net income (loss), including noncontrolling interests | $22.5 | $(25.4) |
| Net income (loss) attributable to Class A shareholders | $0.18; $0.05 per diluted share | $(8.1); $(2.69) per diluted share |
| Adjusted EBITDA (non-GAAP) | $65.0 | $46.5 |
| Operating cash flow | $43.3 | $51.5 |
| Capital expenditures | $1.3 | $19.1 |
| Cash and cash equivalents, quarter-end | $51.3 | $24.2 at Dec. 31, 2020 |
| Debt, quarter-end | $657.0 | $624.0 at Dec. 31, 2020 |
Revenue fell about 16% year over year, while operating income margin was about 38% versus 46%. Average natural gas throughput declined to 436 MMcf/d from 577 MMcf/d. Affiliate midstream revenue decreased $9.3 million, primarily due to lower Apache volumes; third-party product sales rose to $2.6 million from $0.1 million. Operations and maintenance expense fell $3.2 million, largely following operational efficiencies from the centralized Diamond cryogenic complex.
Adjusted EBITDA increased about 40%, but the comparison and GAAP earnings were affected by items that are not indicative of core operating trends. Q1 2021 included an estimated $7.2 million electricity underutilization credit related to the Texas freeze. Income also included $21.7 million from equity-method investments, including contributions from the Permian Highway Pipeline, which began service in January. The quarter included a $16.5 million noncash loss on the preferred-unit embedded derivative. The prior-year period included a $62.0 million loss on that derivative.
Cash, debt and liquidity
Cash increased $27.1 million during the quarter. Operating cash flow was $43.3 million; investing activities used $13.2 million, including $20.5 million of equity-method contributions; and financing activities used $2.9 million after borrowings and distributions. Altus had $141 million of available committed borrowing capacity at March 31, 2021, with $657 million drawn and a $2 million letter of credit outstanding under its $800 million revolving facility. The facility matures in November 2023, subject to extension options. The reported leverage ratio was below 4.00x, and the company said it was in compliance with its credit agreement.
Outlook, risks and notable items
- Management expected positive cash flow for the remainder of 2021, minimal spending on existing infrastructure and approximately $10 million of additional pipeline equity contributions. It believed resources would cover expected capital spending and the quarterly dividend, while noting forecasts remained dynamic.
- On May 4, 2021, the board declared a $1.50-per-share Class A dividend, totaling $5.6 million, payable June 30. The related distribution to common unitholders was expected to total $24.4 million, with most payable to Apache.
- Service agreements with Apache had no minimum-volume commitments. Lower Apache production or limited success in securing third-party volumes could weigh on throughput and revenue. COVID-19 uncertainty, commodity-driven customer activity, power and other operating costs, and Texas freeze impacts were risks discussed by management.
- Although fee-based contracts limited direct commodity-price exposure, Altus remained indirectly exposed to commodity prices through customer production and drilling decisions. A 1 percentage-point increase in interest rates was estimated to raise annual interest expense by approximately $1.6 million. The company had no interest-rate hedges outstanding.
- The filing disclosed a material weakness in controls over accounting for warrants. Altus revised prior-period financial statements to account for warrants as liabilities and also corrected an immaterial equity-method income error. Management said remediation procedures were implemented, but the weakness was not yet considered remediated pending sufficient operation and testing of controls.
- The company reported no material pending or threatened litigation known to it, no recorded loss-contingency accruals and no known material environmental claims as of March 31, 2021.
Most important facts for investors to verify
- Confirm the issuer: the source is Altus Midstream Company, not Kinetik Holdings Inc.
- Assess dependence on Apache, declining throughput and the absence of minimum-volume commitments; verify progress in adding third-party business.
- Separate recurring operating performance from the electricity credit, derivative fair-value changes and equity-method income; review the non-GAAP Adjusted EBITDA reconciliation.
- Monitor debt growth, available revolver capacity, covenant headroom, variable-rate exposure and the cash demands of preferred distributions and common dividends.
- Track whether the disclosed material weakness is fully remediated and whether future reporting identifies further accounting revisions.