Q4 2019 Earnings Call

company is growing tremendously and is

Jackson to continue to do so in the future and our transaction track record coupled with the Midstream team smooth execution. It helped Drive nineteen consecutive quarters of 15% distribution growth, which is off and set this up for an ID our transaction that strengthen both companies in a big way all these things create an exciting future. And with that. I'm going to turn it over to Dawn to talk about some of the transaction highlights. Thanks Nikki and good morning everyone. I'd like to start out by covering the details of the transaction and then walking through our updated guidance. But before I get into the details of the idea or transaction, I want to hire the due to the recent investor focus and push to address is across the MLP space. We executed our simplification transaction much earlier in our MLP life cycle than most other MLM.

And in figuring this out both see you next see you next Midstream the independent Midstream board members and their legal and financial advisors worked hard to come up with a fair transaction show me the details of the transaction can be found on slide six, as you can see as part of the transaction. See you next received $26 million cnx Midstream, three million. See you next Midstream Class B units and deferred cash payments, totaling $135 the class B units represent a newly-issued class units, which will not receive or crew distributions prior to conversion. The class B units will automatically convert to see you next Midstream, units on January 1st of 2022.

So $130.

Five million cash component of the transaction will be paid out in three installments $15 on December 31st of 2020 $50 on December 31st of 2001 and thirty-five million dollars on December 31st of 2022 as a result our sponsors tnx now owns more than 50% of the equity interest and see you next Midstream which continues to represent important and material value to see an extra resources as Illustrated on site seven. There are a number of benefits associated with this transaction off. The transaction was purposely structured to stagger the value over the next three years to ensure LP unit holder accretion for each year beginning in 2020 while also ensuring that choice stream maintains a best-in-class balance sheet this transaction also simplifies our corporate structure permanently lowers our cost of capital and creates further alignment between the sponsoring public off.

As each owns the same.

Form of equity interest and see you next Midstream. Now, we expect this transaction to substantially expand the opportunity set for see you next mission going forward and we are glad the idea of or hang is now eliminated form of guidance can be found on a date as you can see. We are reaffirming our 2022 or 2020 guidance and giving wage premium preliminary guidance for 20 21 looking forward in both twenty twenty and twenty Twenty-One. You can see even as expected to grow materially or Capital spend is expected to climb definitely and already strong leverage. The issue is expected to get even better and I want to make sure to highlight that under the base plan that are looked is based upon see you next Midstream generate significant free cash flow, especially relative to its current equity and Enterprise Value and this free cash flow provides us with a tremendous amount of strength and optionality going forward.

we're excited and we

Very optimistic about the future and with that I'll hand it over to chat to discuss our operational performance. Thanks, Don slide 9 provides an update on the status of the major overhaul of our Southwestern PA system during 2018. We completed the expansion of our more stationed in Belton commissioner drivers compressor compressor station in all we add it just over 18,000 horsepower during the year.

We're still on schedule with a green field Buckland station and expect to begin utilizing that station late spring. I'd like to congratulate the team on their successful completion of our 2019 capital and capital program.

Looking into twenty-twenty. We still have a fair amount of infrastructure projects planned in addition to completing Buckland. We plan to expand our Dry Ridge interconnect install additional compression at Dry Ridge and install a new tab in the office Eastern directly from our Brooklyn station. Once those are complete our Southwest Pennsylvania system is situated to support years or production from cnx and our other shippers. The stations have been have been designing a traditional compression and D high capacity to be essentially plug and play and in our unique dual-line. Well connects will greatly assist our shippers that they come back for second and third trips to their pads. We expect extended utilization of the capital we deployed in 2019.

We built a long-lived misting system in the core of Southwest PA Marsalis. We use Financial backstops.

Provided by welcome Inns from our primary shipper. We're now positioned for multiple routes of future development in years of healthy free cash flow slide 10 highlights are strong track record focus on faith movement in operating costs and it's really the result of two main drivers. We've been very thoughtful over the years with how we would expand our system in order to keep operating efficiency high and strong culture am team for reading out in efficiencies and finding ways to do things better that's paid off over the years. In fact since the fourth quarter of 2014 to the fourth quarter of 2009, even though our volumes have more than doubled and our footprint is expanded. Our operating costs have gone down on an absolute basis.

Spot 11 provides a reminder of the financial backstop provided by our gathering agreements everything we've been able to do over the last two years from the Midstream billed out to the continued distribution growth to the IDR transaction page are based upon these commitments and even after their target years past the assets and operating leverage. They allowed us to build will continue to pay Financial Rewards well into the future and I want to highlight the magnitude of these commitments off at their combined face value of the commitments are worth nearly nine hundred and sixty million dollars the minimum Revenue to see you next time.

Moving is 512. We've updated our distribution.

Barchart as the slide illustrates, even if our customers develop at the bare minimum required to meet their well and volume commitments disconnects, em, we would expect our distributable cash flow to continue to exceed our distributions at the 15% annual growth rate target through 2022 and slide thirteen really sums up where we are exiting 2019 and entering 20/20 Beyond we've resolved the issue or overhang. We have a balance sheet and leverage ratio combined with financial commitments from our shippers to protect us from changes in commodity in Capital Market downturns. We're forecasted to return to strong free cash flow generation that the major Capital overhaul is winding down beginning with 130 million dollars and twenty twenty and in early view of around two hundred million dollars and twenty Twenty-One and with the idea of resolved. We've eliminated any page will miss the line with our sponsor and largest shipper cnx who just so happens to have one of the best balance sheets and heads books in the basement.

As we've discussed since IPO see you next has continually performed by delivering on its plans and growing the business, and now after the last two-plus years of working hard to expand the infrastructure and improve the corporate structure for ready for an even brighter future and with that. I'll hand it back to Tyler to open up the line for any questions operator. If you can open the line up at this time, we happy to take any questions from the audience. We will now begin the question-and-answer session to ask you a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone now, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

once again, if you have a question, please press * then 1

the first question will come from Cristela of Barclays.

Hi guys, good morning morning. I guess just Quick One For Me. Maybe. Could you help with sort of bridge the the Gap in the 2020 guidance? I guess relative to you know, the 250 to 270 even thought of Target you guys have put out there, you know, it looks like you're expecting throughput to be you know, the the the 1.6 the 1.75 BTUs per day is roughly flattish, I guess from where you finished in 2019. See you next Thursday is indicating that volume growth next year might also this year rather might also be limited. So just curious to know kind of how you know, what's behind the eight fifty percent growth in 2020 relative to some of the other expectations that are out.

Yeah, sure.

A combination of many different factors. It's the you know, the dry gas rate versus the wet gas rated some of the the incremental tear compression fees that we've we've agreed to with cnx. So there's there's a bunch of components that affect the kind of the rate blend that you're expected to get it to see an X Midstream level into if you look at see you next is activity and where where they're spending their money on T. The majority of that is in the see you next Midstream bucket. So some of the non Midstream assets that would be otherwise declining and and see you next is total production wedge is being offset by more cnx midstream's volumes and couple that with the different fee structures of that talk through allows you to get the guidance the way it's been set up we certain age to continue to improve on operating costs, which should help operating margin which we expect to help from our operating margin in 2020.

Okay makes sense. Thanks for that guys. And then I guess the follow-up to that, you know, what are the expectations in 2020 and as far as third-party activity goes?

So we have we have a new third party.

Let's plan to turn in line call it to to maybe Lake you to work and very close to those guys to make sure that that our facilities are ready to go when they're ready to bring as well as online. We're super excited about this Thursday. It's the first arms-length like new Greenfield pad that scene xm's gathered. And so we're super excited to get this thing online. And like I said, that's that's a good way to sort of turn it on.

Okay, thanks for that. That's it for me.

And this concludes our question-and-answer session and also concludes today's conference call. We want to thank you all for joining today's presentation. You may now disconnect. Have a great day off off off.