Q4 2024 Antero Midstream Corp Earnings Call
Anno Gratia Presents
Greetings, and welcome to the Antero Midstream fourth quarter 2024 earnings call. At this time, all participants are in listen-only mode.
Brendan Kruger: Turning me on the call today are already chairman CEO and President of Antero resources, Antero Midstream Brendan Kruger CFO of Antero Midstream and Michael Kennedy CFO of Antero resources and director of interim midstream.
I'll turn the call over to Paul.
Paul: Thanks, Justin good morning, everyone.
Paul: In my comments I will discuss aam's, consistent EBITDA growth and increasing return on invested capital.
Paul: I will also spend time, highlighting our 2020.
Paul: 2025 capital budget.
Paul: Brendan will then walk through our fourth quarter results and discuss our 2025 guidance and outlook.
Paul: Let's start on slide number three titled.
Paul: A decade of consistent growth and returns.
Paul: This slide illustrates aam's EBITDA growth and return on invested capital our <unk> IC and.
Paul: In 2024, we generated EBITDA of 1.05 billion, our 10th consecutive year of EBITDA growth.
Paul: Importantly in 2024, we generated an ROIC.
Paul: 17%.
Paul: It was a company record.
Paul: Just in time capital investment philosophy Unparallel visibility.
Paul: And accretion from our bolt on acquisition all contributed to the increase in ROI IC in 2024.
Paul: Looking ahead to 2025, we expect continued EBITDA growth driven by year over year throughput growth, which Brandon will provide more details around.
Speaker Change: Now, let's move on to slide number four titled 2025 capital budget summary.
Speaker Change: In 2025, we budgeted $170 million to $200 million of capital expenditures.
Speaker Change: Consists of approximately $100 million of organic capital and $15 million investment in the Stonewall joint venture.
Speaker Change: Our gathering and compression capital for 2025 is approximately $85 million about half of the previously mentioned $170 million of organic capital.
Speaker Change: This includes our traditional blocking and tackling low pressure gathering connects and the remaining capital for our tour ESP compressor station, which is depicted on the right hand side of the page.
Speaker Change: This station will have 160 million cubic feet a day of capacity and is expected to be placed in service during the second quarter of 2025.
Speaker Change: This station was built with relocated units from an underutilized station that resulted in approximately $25 million of estimated savings.
Speaker Change: In the water business segment, we are investing approximately $85 million in 2025.
Speaker Change: This $85 million includes an expansion of our water system to the southern half of our Marcellus footprint.
Speaker Change: And creates one integrated system across the entire liquids rich midstream corridor.
Speaker Change: This upgrade will support capital efficient development and flexibility across the entire acreage position for the next decade and beyond.
Speaker Change: Lastly, let's discuss discuss our $15 million investment in Stonewall, which is the primary driver of the increase in capital expenditures year over year.
Speaker Change: This investment is for additional compression on the Stonewall gathering system.
Speaker Change: The additional compression will allow third party customers to deliver gas to Stonewall.
Speaker Change: Other long haul pipelines further diversify antero midstream customer base.
Speaker Change: With that I will turn the call over to Brett.
Brett: Thanks, Paul I'll begin my comments on slide number five titled fourth quarter and full year 2024 highlights.
Brett: During the fourth quarter, we generated $274 million of EBITDA.
Brett: Which was an 8% increase year over year free cash flow after dividends was $93 million or 91% increase year over year. Importantly, this increase in free cash flow allowed us to reduce absolute debt by over $50 million and achieve our three times leverage target during the quarter.
Brett: As a result, we commenced our share repurchase program repurchasing almost $30 million of shares during the quarter.
Brett: At full year 2024 results, we generated $250 million of free cash flow after dividends, which was a company record.
Brett: This allowed us to internally finance, our Marcellus bolt on acquisition earlier this year reduced debt by almost 100 million and repurchase shares all within the same year.
Brett: Now, let's move on to slide number six titled 2025 guidance.
Brett: Looking 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 am dedicated acreage.
Brett: As expected to result in low single digit throughput growth on AAM system, and consistent freshwater delivery volumes year over year.
Brett: This growth in our gathering and processing segment combined with annual CPI adjustments to our fees resulted 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.
Brett: Gulf of lower absolute debt levels.
Brett: 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.
Brett: I'll finish my comments on slide number seven.
Brett: Titled flexible approach to shareholder returns.
Brett: In 2024, we are one of the only midstream companies that reduced absolute debt acquired assets paying an attractive dividend and repurchase repurchased shares.
Brett: Looking ahead to 2025, we expect to maintain our <unk> 90 per share dividend and allocate the remaining free cash flow after dividends share repurchases and additional debt reduction.
Brett: In summary, we are very excited about 2025, our capital budget focused on the lowest cost natural gas basin in North America continue to get more efficient.
Brett: This capital efficiency drive 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.
Brett: Thank you well now be conducting a question and answer session.
Brett: If you'd like to ask a question at this time you May press star one from your telephone keypad.
Brett: The comprehensive indicate your line is in the question queue.
Brett: You May press star two if he like to withdraw your question from the queue.
Brett: For participants that are using speaker equipment, it may be necessary to pick up the handset before pressing the star keys one.
Brett: One moment, please where we poll for questions. Thank you.
Brett: Our first question today comes from the line of Naomi Murphy with UBS. Please proceed with your questions.
Brett: Yeah.
Naomi Murphy: Hi, good morning, Thanks for taking my questions.
Naomi Murphy: A follow up question is relating to data center can you talk about lines as it relates to future data center deals and how does that translate into an.
Speaker Change: Yes, I think on the last call that <unk> had this morning.
Speaker Change: <unk> is well positioned with its transport portfolio and also just being in the region in Appalachia.
Speaker Change: To the extent there are data center opportunities, where we're in those discussions.
Speaker Change: Whether any of that comes to fruition I think its still early at this point.
Speaker Change: I am being the midstream service provider primary midstream service provider.
Speaker Change: Our would of course be part of those discussions as well.
Speaker Change: So again early early on and some of those conversations. So we will continue to keep everyone posted to the extent that materialized just anything.
Speaker Change: Okay. Thanks, and my second question is relating to increased production is that right.
Speaker Change: Just wanted to understand this a good return to higher activity levels in 2025, and if I could possibly assume the critical activity going forward.
Speaker Change: Okay.
Speaker Change: Yeah, So for 2025.
Speaker Change: It does have a drilling JV so from a from a gross volume perspective, you will see increases in volumes at the AAM level in the low single digit level.
Speaker Change: That combined with the.
Speaker Change: With the CPI escalator on fees is what drives that kind of mid single digit EBITDA growth year over year and 2025.
Speaker Change: So nice growth nice low digit growth at am.
Speaker Change: On the volume side, a nice cash flow growth in the mid single digit side as well.
Speaker Change: Okay.
Speaker Change: Great. Thanks, I'll leave it there have a paycheck.
Speaker Change: Thank you as well.
Speaker Change: Our next question is from the line of Jeremy Tonet with J P. Morgan. Please proceed with your questions.
Noah Cats: Hey, this is Noah cats on for Jeremy Thanks for the question.
Speaker Change: First I wanted to touch on the recent disclosures on the Veolia lawsuit.
Speaker Change: Any more details on the event in December and where am is in the process and then with the 19 million you received for attorneys' fees and costs. What can we expect AMD use this inflow of cash for can we expect higher buybacks throughout 2025 with the increase in cash.
Speaker Change: Yes on your first question no additional disclosure outside of what we've put in the 10-K, so still waiting through the through the IPO process in terms of the ability to appeal further so no.
Speaker Change: Opinion in terms of where that plays out at this at this juncture.
Speaker Change: And then to the extent cash flow does come in from that that lawsuit depending on when that comes and we will of course analyze what makes sense from a capital allocation standpoint, but would likely just be more of the same in terms of.
Speaker Change: Portfolio approach across debt pay down.
Speaker Change: Buying back shares.
Speaker Change: Sounds good thanks for that and.
Speaker Change: Maybe maybe it's a follow up just to get a bit deeper on the $85 million invested in water infrastructure and 25.
Speaker Change: More details on this integrated water system in the Marcellus you're building in.
Speaker Change: What specific cost efficiencies you guys can benefit from I don't know if you guys can provide any.
Speaker Change: Any numbers around that at all thank you.
Speaker Change: Yeah, so for the $85 million, it's really.
Speaker Change: Across a couple of projects one is the integrated water system, we talked about building further to the south.
Speaker Change: The benefit is that from an AR perspective, it allows <unk> to develop the entire field.
Speaker Change: Across the liquids rich corridor, both both in the northwest southwest Southern portion.
Speaker Change: So a lot of areas and options for AAR to develop I think the benefit from an AAM perspective is we also have a lot of legacy infrastructure in the southern portion and so to the extent does develop.
Speaker Change: It should be require less overall capital spend on infrastructure in that southern southern portion. So great project overall I think.
Speaker Change: For the family and looking forward to execute 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.
Speaker Change: Building the water system further across across the entire acreage position.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Olivia Halferty with Goldman Sachs. Please proceed with your question.
Olivia Halferty: Hey, good morning, Thank you for taking our questions maybe we'll stay on water for a moment aam's water wells 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 that.
Our drilling partnership and then maybe looking longer term, how should we expect the water business to trend versus a production activity.
Olivia Halferty: Yeah, so for the fourth quarter, we did have.
Olivia Halferty: <unk> talked about on its earnings call that was primarily completed in December.
Olivia Halferty: Which drove the increased volumes in the fourth quarter really running with with two completion crews.
Olivia Halferty: As we look forward to 'twenty five.
Olivia Halferty: We would expect a similar level of overall water volume compared to compared to 24, we are servicing more wells, but the lateral lengths are a couple of thousand feet shorter on average so.
Olivia Halferty: Water water feed overall and water use should be similar year over year and then in terms of cadence as you think about 25%.
Olivia Halferty: <unk> talked about one of the duck that being completed in the third quarter. So that's when we you likely be running two completion crews call. It ended the second quarter.
Olivia Halferty: So you should see probably a little bit more water in the second quarter versus the other quarters in the year.
Speaker Change: 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 buyback specifically.
Speaker Change: Is there any way to frame up the right run rate of buybacks to trend under the 500 million authorization.
Speaker Change: Versus the $29 million executed this quarter.
Speaker Change: Yeah. So on the on the M&A I mean, we're certainly looking at all opportunities.
Speaker Change: In basin, particularly and.
As we look at those opportunities we look at returns relative to pay.
Speaker Change: Paying down debt and buying back shares at AAM as well so.
Speaker Change: To the extent organic M&A, sorry, M&A opportunities compete on a rate of return perspective, we will certainly look at those.
Speaker Change: And then I have as it relates to buybacks as we look at look at each kind of quarters expected free cash flow.
Speaker Change: It's likely a 50 50 mix after dividends between share repurchases and further debt Paydown is a good good number to think about moving forward.
Speaker Change: Got it Super helpful. I'll leave it there thanks.
Speaker Change: Thank you.
Speaker Change: Thank you if you'd like to ask a question at this time you May press Star one.
Speaker Change: Thank you.
Speaker Change: At this time I will turn the floor back to Justin Agnew for closing remarks.
Speaker Change: Thank you operator, and thank you everyone for joining today's call. Please feel free to reach out with any follow up questions. Thanks.
Speaker Change: Yeah.
Speaker Change: Thank you. This does conclude today's teleconference. We thank you for your participation you may now disconnect your lines at this time.