Antero Midstream Corp. Q3 FY2024 earnings call

Capital Program - 2024:

• 2024 capital expenditures were initially budgeted at $150 million to $170 million. $56 million was invested in the third quarter, 35% of the full-year budget, with acceleration due to favorable weather. Torreys Peak Compressor Station construction is progressing, expected online in Q2 2025.

AR's Position:

• AR receives premiums on propane exports due to strong international demand and Gulf Coast export constraints, with premiums expected to persist into 2025. AR's unhedged free cash flow break-evens are approximately $2.20 per MCF of gas, well below peers.

Q3 Highlights:

• Generated EBITDA of $256M, flat QoQ throughput volumes, freshwater delivery declined. Free cash flow after dividends $40M, 32% YoY increase. Leverage 3.1 times as of 9/30.

Future Outlook:

• Expect leverage to decline below three times in Q4, ahead of original 2025 target. 2025 expected EBITDA and free cash flow growth, positioning to return capital to shareholders.

During the third quarter, Antero Midstream generated EBITDA of $256 million, a 2% year-over-year increase. Throughput volumes were approximately flat compared to the second quarter, while freshwater delivery volumes declined sequentially. Free cash flow after dividends was $40 million, a 32% increase from the previous year. As of September 30th, leverage was 3.1 times, and it is expected to decline below three times during the fourth quarter. In terms of revenue contribution, the key segments' financials are tied to EBITDA performance and volume trends as discussed.

Leverage Target:

• Expect leverage to decline to less than three times in the fourth quarter, one year ahead of the original 2025 target.

2025 Expectations:

• Anticipate further growth in EBITDA and free cash flow, positioning to return incremental capital to shareholders.

Q: Hey, this is Noah Katz on for Jeremy. First, I wanted to touch on the impact to AM's results from AR announcing the deferral of completion on the one pad from 2024 into 2025 and then the deferral of the second pad from early 2025 into the latter part of the year. Can you size the impact towards the end of 2024 and into 2025?

A: Yeah. Great question. If you look at 2024 and the guidance range we have given, you can see we have given a range that to the extent AR completed that due to higher prices, you would fall in the middle of that range. To the extent AR defers it, you would fall near the lower end of the range. It is about $10 million of EBITDA overall. If you look at just the water impact, you would not see the gathering impact until next year anyways. So the water impact this year would be about $10 million. And then no change really on 2025 in terms of where that is shaking out. Push back a bit, you will still get the water volumes and the gathering would fall within expectations.

Q: Hi. Good morning. Just as a follow-up to one of the earlier questions, maybe to look ahead to ‘25, given some of the depth growth in AR activity, along with the dropping of a completion crew on a rig in ‘24. Just kind of wondering if you could kind of characterize some of the drivers of growth going into 2025. Should we still be expecting mid-single-digit growth, or is there a potential upside to it?

A: No, I think that is a fair assumption. On the gathering side, we would expect in the low to mid-single-digit growth, you have a little bit of CPI escalation on those fees. Then on the water side, it will just depend on where we end up on those deferrals, but generally should assume about consistent volumes year-over-year. If the pad gets deferred completely out of ‘24 into ‘25, then you would expect a little bit more volumes in ‘25 relative to ‘24.

Q: Hi, thanks for that. I just wanted to pick up on a couple of these pointing to getting below three times in the fourth quarter. I guess, how much of that is driven by your confidence in kind of CapEx coming down and the free cash flow looking better that way versus just kind of implied EBITDA step-up just because you’ve talked about the moving pieces. And should that mean we can sort of see buybacks this quarter?

A: I think we’ve said it in terms of once we hit the three times target we’ll led to the buyback market. I think we do have a lot of confidence we'll hit that three times target in the fourth quarter. It's really a combination of your points. Very confident in the capital coming down. And then in terms of the EBITDA, should see a bit of growth. As I mentioned, we had some ramp up time in the third quarter on that E-fleet. So even if you just ran one fleet, you should see 10,000 barrels a day of growth or so relative to third quarter. So feel good about overall increase in cash flow. And if that pad slid into the fourth quarter because of pricing, then you'd see even a further benefit. But even without that, we feel pretty good about hitting that three times target in the fourth quarter.