Antero Midstream Corporation (NYSE:AM) Q4 2024 Results Conference Call February 13, 2025 12:00 PM ET

Company Participants

Justin Agnew - VP of Finance and IR
Paul Rady - Chairman, CEO and President of Antero Resources and Antero Midstream
Brendan Krueger - CFO of Antero Midstream

Conference Call Participants

Naomi Marfatia - UBS
Noah Katz - J.P. Morgan Chase & Co.
Olivia Halferty - Goldman Sachs

Operator

Greetings, and welcome to the Antero Midstream Corporation Fourth Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Anyone requiring operator assistance, please signal an operator.

As a reminder, this conference is being recorded. It is now my pleasure to introduce Justin Agnew, Vice President, Finance and Investor Relations. Justin, you may now begin.

Justin Agnew

Thanks, Operator, and good morning, everybody. Thank you for joining us for our Antero Midstream Corporation fourth quarter investor conference call. I will spend a few minutes going through the financial and operating highlights, and then we will open it up for Q&A.

I would also like to direct you to the homepage of our website at www.anteromidstream.com, where we have 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. 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 Corporation, Brendan Krueger, CFO of Antero Midstream Corporation, and Michael Kennedy, CFO of Antero Resources and Director of Antero Midstream Corporation. With that, I'll turn the call over to Paul.

Paul Rady

Thanks, Justin. Good morning, everyone. In my comments, I will discuss Antero Midstream Corporation'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. Let's start on slide number three, titled "A Decade of Consistent Growth and Returns." This slide illustrates Antero Midstream Corporation's EBITDA growth.

In 2024, we generated EBITDA of $1.05% billion, marking 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.

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 million to $200 million of capital expenditures. This consists of approximately $100 million of organic capital and $15 million investments in the Stonewall joint venture. Our gathering and compression capital for 2025 is approximately $85 million, about half of the previously mentioned $170 million of organic capital. 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 a 160 million cubic feet a day of capacity and is expected to be placed in service during the second quarter of 2025. The station was built with relocated units from an underutilized station that resulted in approximately $25 million of estimated savings. In the water business segment, we are investing approximately $85 million in 2025.

This $85 million 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. 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 million 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 Corporation's customer base. With that, I will turn the call over to Brendan.

Brendan Krueger

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 million of EBITDA, which was an 8% increase year over year. Free cash flow after dividends was $93 million, a 91% increase year over year.

Importantly, free cash flow allowed us to reduce absolute debt by over $50 million and achieve our three times leverage target during the quarter. As a result, we commenced our share repurchase program, repurchasing almost $30 million of shares during the quarter. Looking at full-year 2024 results, we generated $250 million 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 million, 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. This includes approximately two rigs and just over one completion crew operating exclusively on Antero Midstream Corporation dedicated acreage.

This is expected to result in low single-digit throughput growth on the Antero Midstream Corporation 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 million to $200 million.

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 million to $300 million in free cash flow after dividends, which is a 10% increase year over year at the midpoint. 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 $0.90% 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. Capital budgets focused on the lowest-cost natural gas basin in North America continue to get more efficient.

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, which we believe drives long-term shareholder value. With that, operator, we are ready to take questions.

Operator

For participants that are using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Thank you. Our first question today comes from the line of Naomi Marfatia with UBS.

Please proceed with your questions.

Naomi Marfatia

Hi. Good morning. Thanks for taking my questions.

My first question is relating to data centers. Can you talk about Antero Resources' plans as it relates to future data center deals, and how does that translate into Antero Midstream Corporation.

Paul Rady

Yeah. I think, you know, on the last call that Antero Resources had this morning, I think Antero Resources is well-positioned with its transport portfolio and also just being in the region in Appalachia that the extent there are data center opportunities, we are in those discussions. Whether any of that comes to fruition, I think it's still early at this point, and Antero Midstream Corporation, being the primary midstream service provider to Antero Resources, will of course be part of those discussions as well.

So, again, early on in some of those conversations, so we will continue to keep everyone posted to the extent that materializes into anything.

Naomi Marfatia

Okay. Thanks. And my second question is relating to Antero Resources' increased production guide.

Just wanted to understand if Antero Resources could return to higher activity levels in 2025 and if Antero Resources could possibly assume that rental activity going forward.

Paul Rady

Yes. So for 2025, Antero Resources does have a drilling JV. So from a gross volume perspective, you will see increases in volumes at the Antero Midstream Corporation 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, you know, nice growth, nice low-digit growth at Antero Midstream Corporation on the volume side and nice cash flow growth in the mid-single-digit side as well.

Naomi Marfatia

Great. Thanks. I'll leave it there.

Have a great rest of your day.

Paul Rady

Thank you. You as well. Our next question is from the line of Jeremy Tonet with JPMorgan.

Please proceed with your questions.

Noah Katz

Hey, 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 Antero Midstream Corporation is in the process.

And then with the $19 million you received for attorney's fees and costs, what can we expect Antero Midstream Corporation to use this inflow of cash for. Can we expect higher buybacks throughout 2025 with the increase in cash.

Brendan Krueger

Thanks. Yeah. And on your first question, no additional disclosure outside of what we've put in the 10-Ks.

So still waiting on 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, you know, 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 it would likely just be more of the same in terms of a portfolio approach across debt pay down and buying back shares.

Noah Katz

Sounds good. Thanks for that. And maybe as a follow-up just to get a bit deeper on the $85 million invested in water infrastructure in 2025.

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. Don't know if you guys can provide any numbers around that at all.

Brendan Krueger

Yeah. So for the $85 million, it's really across a couple of projects. One is the integrated water system.

The benefit is that, you know, from an Antero Resources perspective, it allows Antero Resources to develop the entire field across the liquids-rich corridor both in the northwest, southwest, and southern portion. So a lot of areas and options for Antero Resources to develop. I think the benefit from an Antero Midstream Corporation perspective is we also have a lot of legacy infrastructure in the southern portion, and so to the extent Antero Resources does develop south, it should 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 continuing to build out the backbone of the water system in the northern part of the play as well.

So, yep, building the water system further across the entire acreage position.

Noah Katz

Thank you.

Operator

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

Olivia Haffordy

Hey, good morning. Thank you for taking our questions. Maybe we'll stay on water for a moment.

Antero Midstream Corporation's Water Well Service stepped up meaningfully in the quarter, and the full-year 2025 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 Antero Resources Drilling partnership. Then maybe looking longer term, how should we expect the water business to trend versus Antero Resources' production activity.

Brendan Krueger

Yeah. So for the fourth quarter, we did have a duck pad that Antero Resources 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 2024.

We are servicing more wells, but the lateral lengths are a couple thousand feet shorter on average. So water feet overall and water use should be similar year over year. And then in terms of cadence, as you think about 2025, you know, we talked about one of the duck pads being completed in the third quarter.

So that's when you would likely be running two completion crews, call it end of the second quarter. You should see probably a little bit more water in the second quarter versus the other quarters in the year.

Olivia Haffordy

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&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 million authorization versus the $29 million executed this quarter.

Brendan Krueger

Yes. So on the M&A, I mean, we are 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 Antero Midstream Corporation as well.

So to the extent organic M&A or sorry, M&A opportunities compete on a rate of return perspective, we'll certainly look at those. Then as it relates to buybacks, you know, as we look at each kind of expected free cash flow, it's likely a 50/50 mix after dividends between, you know, share repurchases and further debt pay down is a good number to think about moving forward.

Olivia Haffordy

Got it. Super helpful. I'll leave it there.

Thanks.

Brendan Krueger

Thank you.

Operator

Thank you. If you would like to ask a question, please press star, one on your telephone keypad. At this time, I'll turn the floor back to Justin Agnew for closing remarks.

Justin Agnew

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

Operator

Thank you. This does conclude today's teleconference. We thank you for your participation.

You may now disconnect your lines at this time.