Antero Midstream Q4 2024 Earnings Report

Antero Midstream EPS Results

• Actual EPS: $0.23
• Consensus EPS: $0.24
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

Antero Midstream Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $273.09 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Antero Midstream Announcement Details

• Quarter: Q4 2024
• Date: 2/12/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 13, 2025
• Conference Call Time: 12:00PM ET

Antero Midstream (NYSE:AM) owns, operates, and develops midstream energy assets in the Appalachian Basin. It operates in two segments, Gathering and Processing, and Water Handling. The Gathering and Processing segment includes a network of gathering pipelines and compressor stations that collects and processes production from Antero Resources' wells in West Virginia and Ohio. The Water Handling segment delivers fresh water from sources, including the Ohio River, local reservoirs, and various regional waterways; uses water handling systems to transport flowback and produced water; and offers pumping stations, water storage, and blending facilities. The company was founded in 2002 and is headquartered in Denver, Colorado.

Antero Midstream Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Greetings, and welcome to the Antero Midstream Fourth Quarter twenty twenty four Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Justin Agnew, Vice President, Finance and Investor Relations.

[Operator]

Justin, you may now begin.

[Justin Agnew, Director of Finance at Antero Midstream]

Thanks, operator, and good morning, everybody. Thank you for joining us for Ontario Midstream's fourth quarter investor conference call. We'll spend a few minutes going through the financial and operating highlights, and then we'll open it up for Q and A. I would also like to direct you to the homepage of our website at www.anteromidstream.com where we've provided a separate earnings call presentation that will be reviewed during today's call. Today's call may also contain certain non GAAP financial measures.

[Justin Agnew, Director of Finance at Antero Midstream]

Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman, CEO and President of Antero Resources and Antero Midstream Brendan Krueger, CFO of Antero Midstream and Michael Kennedy, CFO of Antero Resources and Director of Antero Midstream. With that, I'll turn the call over to Paul.

[Paul Rady, Chairman, Chief Executive Officer and President at Antero Resources]

Thanks, Justin. Good morning, everyone. In my comments, I will discuss AM's consistent EBITDA growth and increasing return on invested capital. I will also spend time highlighting our 2025 capital budget. Brendan will then walk through our fourth quarter results and discuss our 2025 guidance and outlook.

[Paul Rady, Chairman, Chief Executive Officer and President at Antero Resources]

Let's start on Slide number three titled A Decade of Consistent Growth and Returns. This slide illustrates AM's EBITDA growth and return on invested capital or ROIC. In 2024, we generated EBITDA of 1,050,000,000 our tenth consecutive year of EBITDA growth. Importantly, in 2024, we generated an ROIC of 19%, which was a company record. Our just in time capital investment philosophy, unparalleled visibility and accretion from our bolt on acquisition all contributed to the increase in ROIC in 2024.

[Paul Rady, Chairman, Chief Executive Officer and President at Antero Resources]

Looking ahead to 2025, we expect continued EBITDA growth driven by year over year throughput growth, which Brendan will provide more details around. Now let's move on to Slide number four titled 2025 Capital Budget Summary. In 2025, we budgeted 170,000,000 to $200,000,000 of capital expenditures. This consists of approximately $100,000,000 of organic capital and $15,000,000 investment in the Stonewall joint venture. Our gathering and compression capital for 2025 is approximately $85,000,000 about half of the previously mentioned $170,000,000 of organic capital.

[Paul Rady, Chairman, Chief Executive Officer and President at Antero Resources]

This includes our traditional blocking and tackling low pressure gathering connects and the remaining capital for our Torrey Speed compressor station, which is depicted on the right hand side of the page. This station will have 160,000,000 cubic feet a day of capacity and is expected to be placed in service during the second quarter of twenty twenty five. This station was built with relocated units from an underutilized station that resulted in approximately $25,000,000 of estimated savings. In the Water business segment, we are investing approximately $85,000,000 in 2025. This $85,000,000 includes an expansion of our water system to the southern half of our Marcellus footprint and creates one integrated system across the entire liquids rich midstream corridor.

[Paul Rady, Chairman, Chief Executive Officer and President at Antero Resources]

This upgrade will support capital efficient development and flexibility across the entire acreage position for the next decade and beyond. Lastly, let's discuss our $15,000,000 investment in Stonewall, which is the primary driver of the increase in capital expenditures year over year. This investment is for additional compression on the Stonewall gathering system. The additional compression will allow third party customers to deliver gas through Stonewall onto other long haul pipelines further diversifying Antero Midstream's customer base. With that, I will turn the call over to Brenton.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

Thanks, Paul. I will begin my comments on Slide number five, titled Fourth Quarter and Full Year 2024 Highlights. During the fourth quarter, we generated $274,000,000 of EBITDA, which was an 8% increase year over year. Free cash flow after dividends was $93,000,000 a 91% increase year over year. Importantly, the same free cash flow allowed us to reduce absolute debt by over $50,000,000 and achieve our three times leverage target during the quarter.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

As a result, we commenced our share repurchase program, repurchasing almost 30,000,000 of shares during the quarter. Looking at full year 2024 results, we generated $250,000,000 of free cash flow after dividends, which was a company record. This allowed us to internally finance our Marcellus bolt on acquisition earlier this year, reduce debt by almost $100,000,000 and repurchase shares all within the same year. Now let's move on to Slide number six, titled 2025 Guidance. As we look ahead to 2025, we are forecasting similar levels of development activity from our primary customer Antero Resources.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

This includes approximately two rigs and just over one completion crew operating exclusively on AM dedicated acreage. This is expected to result in low single digit throughput growth on AM system and consistent freshwater delivery volumes year over year. This growth in our Gathering and Processing segment combined with annual CPI adjustments to our fees results in mid single digit EBITDA growth as depicted on the top left portion of the page. As Paul noted, our capital budget is $170,000,000 to $200,000,000 We expect our interest expense to be lower in 2025 as a result of lower absolute debt levels. As a result, we expect to generate $250,000,000 to $300,000,000 in free cash flow after dividends, which is a 10% increase year over year at the midpoint.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

I'll finish my comments on Slide number seven, titled Flexible Approach to Shareholder Returns. In 2024, we were one of the only midstream companies that reduced absolute debt, acquired assets, paid an attractive dividend and repurchased shares. Looking ahead to 2025, we expect to maintain our $0.9 per share dividend and allocate the remaining free cash flow after dividends to share repurchases and additional debt reduction. In summary, we are very excited about 2025. Our capital budgets focused on the lowest cost natural gas basin in North America continue to get more efficient.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

This capital efficiency drives the double digit increase in free cash flow after dividends in 2025 and positions us well for the incremental return of capital to shareholders that we believe drives long term shareholder value. With that, operator, we are ready to take questions.

[Operator]

Thank you. We'll now be conducting a question and answer session. Our first question today comes from the line of Naomi Marafeta with UBS. Please proceed with your questions.

[Naomi Marfatia, Associate Director - Equity Research at UBS Group]

Hi, good morning. Thanks for taking my questions. My first question is relating to data centers. Can you talk about AR's plans as it relates to future data center deals and how does that translate into

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

Yes, I think on the last call that AR had this morning, I think AR is well positioned with its transport portfolio and also just being in the region in Appalachia that to the extent there are data center opportunities, we're in those discussions. Whether any of that comes to fruition, I think it's still early at this point. And AM being the midstream service provider, primary midstream service provider to AR would of course be part of those discussions as well. So again early on in some of those conversations, so we'll continue to keep everyone both to the extent that materializes anything.

[Naomi Marfatia, Associate Director - Equity Research at UBS Group]

Great. Thanks. And my second question is relating to AR's increased production guide. Just wanted to understand if AR could return to higher activity levels in 2025 and if AR could possibly assume that it will grow activity going forward?

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

Yes. So for 2025, AR does have a drilling JV. So from a gross volume perspective, you will see increases in volumes at the AM level in the low single digit level. That combined with the CPI escalator on fees is what drives that kind of mid single digit EBITDA growth year over year in 2025. So nice growth nice low digit growth at AM on the volume side and nice cash flow growth in the mid single digit side as well.

[Operator]

Our next question is from the line of Jeremy Tonet with JPMorgan. Please proceed with your questions.

[Noah Katz, Equity Research Associate at JP Morgan Chase & Co]

This is Noah Katz on for Jeremy. First, I want to touch on the recent disclosures on the Veolia lawsuit. Can you provide any more details on the events in December and where AM is in the process? And then with the $19,000,000 you received for attorneys fees and costs, what can we expect AM to use this inflow of cash for? Can we expect higher buybacks throughout 2025 with the increase in cash?

[Noah Katz, Equity Research Associate at JP Morgan Chase & Co]

Thanks.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

Yes. And on your first question, no additional disclosure outside of what we've put in the 10 K. So still waiting through the appeal process in terms of they have the ability to appeal further. And so no opinion in terms of where that plays out at this juncture. And then to the extent cash flow does come in from that lawsuit, depending on when that comes in, we'll of course analyze what makes sense from a capital allocation standpoint, but what would likely just be more of the same in terms of portfolio approach across debt pay down and buying back shares.

[Noah Katz, Equity Research Associate at JP Morgan Chase & Co]

Sounds good. Thanks for that. And maybe as a follow-up, just to get a bit deeper on the $85,000,000 invested in water infrastructure in 'twenty five. Can you provide more details on this integrated water system in the Marcellus you're building? And what specific cost efficiencies you guys can benefit from?

[Noah Katz, Equity Research Associate at JP Morgan Chase & Co]

I don't know if you guys can provide any numbers around that at all. Thank you.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

Yes. So for the $85,000,000 it's really across a couple of projects. One is the integrated water system we talked about building further to the South. The benefit is that from an AR perspective, it allows AR to develop the entire field across the liquids rich corridor, both in the Northwest, Southwest, Southern portion. So a lot of areas and options for AR to develop.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

I think the benefit from an AM perspective is we also have a lot of legacy infrastructure in the southern portion. And so to the extent AR does develop south, it should be require less overall capital spend on infrastructure in that Southern portion. So great project overall, I think, for the family and looking forward to executing on that. And then the other major water project is just continue to build out the backbone of the water system in the northern part of the play as well. So building the water system further across the entire acreage position.

[Operator]

Thank you. Our next question is from the line of Olivia Haferty with Goldman Sachs. Please proceed with your question.

[Olivia Halferty, Equity Research Associate at Goldman Sachs]

Hey, good morning. Thank you for taking our questions. Maybe you will stay on water for a moment. AM's water well service stepped up meaningfully in the quarter and the full year '25 guidance range implies continued growth here. Wondering if we can walk through drivers of the sequential and year over year step ups and any impacts from the AR Drilling Partnership?

[Olivia Halferty, Equity Research Associate at Goldman Sachs]

And then maybe looking longer term, how should we expect the water business to trend versus AR production activity?

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

Yes. So for the fourth quarter, we did have a duct pad that AR talked about on its earnings call that was primarily completed in December, which drove the increased volumes in the fourth quarter really running with two completion crews. As we look forward to 2025, we would expect a similar level of overall water volume compared to 'twenty four. We are servicing more wells, but the lateral lengths are a couple thousand feet shorter on average. So water feed overall and water use should be similar year over year.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

And then in terms of cadence, as you think about '25, we talked about one of the duct pads being completed in the third quarter. So that's when you you'd likely be running two completion crews, call it, end of the second quarter. So you should see probably a little bit more water in the second quarter versus the other quarters in the year.

[Olivia Halferty, Equity Research Associate at Goldman Sachs]

Got it. That's helpful color. And maybe pivoting to capital allocation, particularly on the back of the solid free cash flow outlook, how should we think about potentially accretive M and A competing with additional buybacks versus further potential deleveraging? And then maybe on buybacks specifically, is there any way to frame up the right run rate of buybacks to trend under the $500,000,000 authorization versus the $29,000,000 executed this quarter?

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

Yes.

[Brendan Krueger, CFO, VP of Finance & Treasurer at Antero Midstream]

So on the M and M, we're certainly looking at all opportunities in basin particularly. And as we look at those opportunities, we look at returns relative to paying down debt and buying back shares at AM as well. So to the extent organic M and A or sorry, M and A opportunities compete on a rate of return perspective, we'll certainly look at those. And then as it relates to buybacks, as we look at each kind of quarter's expected free cash flow, it's likely a fifty-fifty mix after dividends between share repurchases and further debt pay down is a good number to think about moving forward.

[Operator]

Thank you. At this time, I'll turn the floor back to Justin Agnew for closing remarks.

[Justin Agnew, Director of Finance at Antero Midstream]

Thank you, operator, and thank you everyone for joining today's call. Please feel free to reach out with any follow-up questions. Thanks.

[Operator]

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.

Participants

Executives

• Justin Agnew, Director of Finance
• Paul Rady, Chairman, Chief Executive Officer and President
• Brendan Krueger, CFO, VP of Finance & Treasurer

Analysts

• Naomi Marfatia, Associate Director - Equity Research at UBS Group
• Noah Katz, Equity Research Associate at JP Morgan Chase & Co
• Olivia Halferty, Equity Research Associate at Goldman Sachs