Q1 2025 Antero Midstream Corp Earnings Call
Greetings and welcome to the Antero Midstream first quarter 2025 earnings call.
At this time, all participants are in listen only mode.
<unk> and answer session will follow the formal presentation.
If anyone should require I forgot assistance during the conference. Please press star zero from your telephone keypad.
Please note that today's conference is being recorded.
Justin Agnew: At this time I'll now turn the conference over to Justin Agnew, Vice President Finance and Investor Relations Justin you may begin.
Justin Agnew: Good morning, and thank you for joining US spring Chairman strengths first quarter Investor Conference call, we'll spend a few minutes going through the financial and operating highlights and then I'll open it up for Q&A I.
Justin Agnew: I would also like to direct you to the homepage of our website at Www Dot Antero midstream Dot com, where we've provided a separate earnings call presentation that will be reviewed during today's call.
Justin Agnew: 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.
Speaker Change: Joining me on the call today are Paul Randy Chairman, CEO, and President of Antero resources Antero Midstream Brendan.
Brendan Krueger: Brendan Krueger CFO of Antero midstream and Michael Kennedy CFO of Antero resources and director Chairman Shri.
Speaker Change: With that I'll turn the call over to Paul.
Speaker Change: Thanks, Justin good morning, everyone.
Speaker Change: In my comments I will discuss our 2025 capital projects at outlet for natural gas demand.
Speaker Change: Brendan will then walk through our first quarter results capital efficiency.
Speaker Change: Return of capital to shareholders, but.
Speaker Change: Let me begin with slide number three titled 2025 capital budget on track.
Speaker Change: Hey, Im side of this slide shows our new Tories peak compressor station, we place the station online in March ahead of our initial expectation of a second quarter.
Speaker Change: Quarter in service date.
Speaker Change: Importantly, this station was there a third compressor station, which was constructed with relocated underutilized units.
Speaker Change: The reuse savings have totaled approximately $30 million at Tories peak at over $50 million across all three stations that we've done this with <unk>.
Speaker Change: Looking ahead, we expect over $60 million of additional reuse savings over the next five years.
Speaker Change: As you can see on the top left portion of the page, we do not have any large diameter high pressure gathering pipelines in the 2025 capital budget.
Speaker Change: Additionally, we have already secured materials pricing and lead times for all our steel and high density polyethylene pipe lines through 2026.
Speaker Change: As a result, we see immaterial impact on our 2025 and 26 capital budget from tariffs and other macro economic headlines.
Speaker Change: Now, let's move on to slide number four titled.
Speaker Change: Growth in Appalachia gas demand.
Speaker Change: Yeah.
Speaker Change: The Appalachian region has quickly become a focal point for natural gas fired power generation data centers and behind the meter projects.
Speaker Change: Over a decade ago, we recognize the significant low cost resource base in Appalachia.
Speaker Change: <unk> forward to today and these announcements further validate positioning.
Speaker Change: These projects will require a significant amount of gas supply for decades to come. In addition, statewide regulations have been leading to faster approval times at attractive incentives to build in the region.
Speaker Change: AAM is well positioned with an investment grade upstream counterparty.
Speaker Change: 20 years of dedicated inventory and one of the largest natural gas and water systems in the region that can be supportive of future projects.
Speaker Change: While these projects generally have a longer lead time in nature. They highlight the long term opportunity set for natural gas focused midstream companies such as a <unk>.
Speaker Change: I'll finish my comments on slide number five titled Natural gas demand estimates continue to increase.
Speaker Change: This slide illustrates the upward momentum in natural gas demand estimates to power data centers.
Speaker Change: And just the last six months the expectations for the power required for data centers by 2030 has doubled as shown on the chart on the left hand side of the page.
Speaker Change: The right hand side illustrates the percentage of data center is expected to be powered by natural gas, which has increased from 50% to 70%.
Speaker Change: This compounding effect to support significant growth in natural gas demand over the next several years.
Speaker Change: With that I'll turn the call over to Brendan Krueger CFO for Antero midstream.
Brendan Krueger: Thanks, Paul I'll begin my comments on slide number six titled first quarter highlights during the first quarter, we generated 274 million of EBITDA, which was a 3% increase year over year. This was driven primarily by an increase in gathering and processing volumes, the latter of which set a company record at $1 65.
Speaker Change: Bcf a day.
Speaker Change: Looking forward to the remainder of 2025, we expect further increases in gathering volumes to drive low to mid single digit year over year growth in gathering volumes in 2025 versus 2024.
Speaker Change: During the first quarter free cash flow after dividends was <unk> 79, billion% to 7% increase year over year. This was the 11th consecutive quarter generating free cash flow.
Speaker Change: After dividends and our second straight quarter above that $75 million Mark.
Speaker Change: We utilize this free cash flow to reduce absolute debt and repurchased over $29 million of shares during the quarter importantly, our leverage decline towards two nine times as of March 31.
Speaker Change: Next let's move on to slide seven titled low debt and capital efficient business model.
Speaker Change: This slide compares aam's leverage and capital efficiency to other companies in the midstream industry.
Speaker Change: In addition to lowering our overall risk profile, our debt reduction efforts have reduced our leverage below three times well below the seaport peer average looking.
Speaker Change: Looking at capital expenditures as a percent of EBITDA, which highlights overall capital efficiency.
Speaker Change: This best in class with a 17% reinvestment rate.
Speaker Change: This is a result of our adjusted time capital investment philosophy and visibility into our primary customers development plan.
Speaker Change: With low debt and leverage and then and an attractive reinvestment rate AAM has the capacity to return a significant amount of capital to shareholders as highlighted on the bottom chart based on consensus estimates and have the ability to allocate approximately 65% of its EBITDA for dividends additional debt reduction.
Speaker Change: And share repurchases. This is nearly double the C Corp average in the midstream space.
Speaker Change: I'll finish my comments on slide eight titled well positioned to enhance shareholder returns to elaborate on those return of capital opportunities.
Speaker Change: The last several years have been focused on debt reduction and accretive bolt on acquisitions looking ahead, our low debt and capital efficiency have positioned us well to pay an attractive dividend.
Speaker Change: Repurchase shares and be opportunistic on M&A opportunities should they arise. We believe this flexible approach direct capital to the highest rate of return opportunities that will accrue directly to our shareholders.
Speaker Change: Capital allocation flexibility is beneficial varying times, where we see opportunities in the equity relative to our current and future cash flow profile, which have been largely unaffected by the recent macro volatility in fact, we believe the medium to longer term outlook isn't really getting brighter.
Speaker Change: With that operator, we are ready to take questions.
Speaker Change: Thank you well now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question at this time. Please press star one from your telephone keypad.
Speaker Change: Information tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to withdraw your question from the queue.
Competition study using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment. Please we poll for questions. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our first question is from the line of Jeremy Tonet with J P. Morgan. Please proceed with your question.
Speaker Change: Hi, good morning.
Speaker Change: Good morning.
Speaker Change: I just wanted to touch on a bit more guests, but the potential for in basin demand growth, which could help with a ars outlook as far as looking for more growth there.
Speaker Change: How do you see this opportunity set shaping up over time.
Speaker Change: The rich resource and a.
Speaker Change: Favorable attributes of the region.
Speaker Change: Yeah I think.
Speaker Change: Got a few projects that have already been announced and I think we see quite a few discussions continuing to take place around a local power demand, particularly.
Speaker Change: Particularly the power data centers, but other industrial uses as well in the region.
Speaker Change: You're seeing it in Ohio, and Pennsylvania, and I think theres been a lot of momentum lately in west Virginia as well.
Speaker Change: In terms of getting some bills passed in west, Virginia, So lot of momentum.
Speaker Change: That ultimately plays out I think it's still a bit early but you know what.
Speaker Change: We're well positioned given the significant infrastructure, we have in place both on the on the gathering and water side with Antero midstream.
Speaker Change: <unk> is of course, well positioned to participate in that as well so.
Speaker Change: We like where we're at a lot of conversations happening, but still early in some of those conversations.
Speaker Change: Got it. Thank you for that and then I know I'm on the call you talked a bit about the LPG market, but just wondering if you could talk a bit here I guess the outlook for our propane and I guess our strategy.
Speaker Change: To mitigate that risk and how that impacts that.
Speaker Change: Yeah. This is Dave King long ago.
Speaker Change: Touching on the propane strategy I mean, I think we'd all.
Speaker Change: Reiterate our confidence in the long term outlook for that product I mean, theres really no.
Speaker Change: True substitute for it in the restaurant markets, you know folks to go back to a solid fuels, but that's obviously a huge reduction in the quality of oblique standards that they've they've moved too so you'll continue to see that market grow.
Speaker Change: There's really nothing else, it's going to reach those those are markets in the billions of people that are prime candidates for switching to LPG. So the restaurant market growth is very steady and sticky and on the petrochemical side.
Speaker Change: We've talked to a lot of our PVH has in the past and do.
Speaker Change: There's a question out there around whether or not.
Speaker Change: With the tariff landscape of China will reduce propane imports.
Speaker Change: Naphtha cracking will increase that's why.
Speaker Change: You kind of make the point that cracker.
Speaker Change: Cracking naphtha to steam Cracker is not a replacement for propane out of PVH PVH is going to produce around 85% of propylene when you put it in.
Speaker Change: And to the units and when you crack naphtha as you read about 15% of propylene out of it so they're really not.
Speaker Change: Substitute type of products or what people are looking for and I think the reason why you've seen the global market go to PVH is a propylene as a product they need and want for the types of.
Speaker Change: Ultimate prop products that are being manufactured around the world and so cracking naphtha is not really going to accomplish that for you in the long run. We think this whole will continue to see growing petrochemical demand for propane because it's such a unique product and what it can deliver.
Speaker Change: Our specialty chemical companies and the automakers yours.
Speaker Change: Got it that makes sense in this might be a bit premature but on the other side of the cycle just wondering whats the outlook for the JV here continues to.
Speaker Change: Run above nameplate and if the propylene market grows over time could be you know more liquids rich production based and could that lead to would you want to participate in any expansion there in the JV on the Frac side.
Speaker Change: Yeah, I mean, I think today, where we're at I think we're comfortable.
Speaker Change: We're running about 4% over nameplate.
Speaker Change: Historically <unk> seen that was run as high as 10% over nameplate. So is there still some room.
Speaker Change: And those in those facilities.
Speaker Change: I think just depending on where prices move and long term outlook.
Speaker Change: For gas and liquids.
Speaker Change: We will reevaluate down the road, but I think as we sit here today comfortable with the position we're in and our maintenance capital noted on Jr said.
Speaker Change: Got it I'll leave it there thank you.
Speaker Change: Thanks, Jeremy.
Speaker Change: The next questions are from the line of Matt Naomi Murphy with UBS. Please proceed with your questions.
Speaker Change: Hi, Thanks for taking my question just a follow up on your commentary on data yes.
Speaker Change: Good luck with bedroom, Mark, but just curious if you could provide any additional details on how competition.
Speaker Change: About commercialization and how <unk> could benefit from the trial.
Speaker Change: Yeah, I don't think.
Speaker Change: As we sit here anything more to say on that were continuing to have those conversations as I mentioned.
Speaker Change: With the infrastructure it has can certainly participate.
Speaker Change: Through additional infrastructure build out do the necessary demand areas.
Speaker Change: But again too early to give any more specifics on that as we sit here today.
Speaker Change: And then my second question is related to capital allocation.
Speaker Change: You all have done buybacks in the last two quarters and the leverage is below three times bad debt, how should we think about it how about your strategy on M&A are bolt ons that you alone most of the gathering and compression on that.
Speaker Change: Yeah. So on the overall allocation there and we are below three times I think we continue to see that portfolio approach.
Speaker Change: Both paying down debt and buying back shares a career to the equity.
Speaker Change: At what level does that stop accruing on the debt side I don't think we've reached that yet so.
Speaker Change: It'll it'll likely be a <unk>.
Speaker Change: <unk> approach going forward.
Speaker Change: And then on the M&A side and always looking at opportunities over the past few years, we've added some very.
Speaker Change: Strategic bolt on acquisitions that support.
Speaker Change: And so we'll continue to look at opportunities like that and we're well positioned given our balance sheet profile to to capitalize on some of those opportunities should they present, but.
Speaker Change: Always looking out there.
Speaker Change: Well positioned.
Speaker Change: I'll leave it there thank you.
Speaker Change: Thank you.
Speaker Change: The next questions are from the line of John Mckay with Goldman Sachs. Please proceed with your question.
John McKay: Hey, Tim I appreciate the comments on the LPG side of things I guess I'd just be curious at all.
John McKay: Ask it in maybe a more direct way I mean.
From an AAM perspective, we obviously care about the volume side like how much softer what pricing need to get to see a kind of production response from a or that would hit.
John McKay: <unk> volumes.
John McKay: You really can't get there John.
John McKay: Mike Kennedy.
Speaker Change: We actually sensitize it to COVID-19 prices and it still wasn't there if you have natural gas prices, where they are at we still have substantial free cash flow, so and even if we don't we wouldn't have we don't have any debt.
Speaker Change: Really so we would continue to run our two rig one plus completion crew.
Speaker Change: Program.
Speaker Change: Really.
Speaker Change: Absent any sort of commodity price.
Speaker Change: Dislocation, we'd continue to run it regardless.
Speaker Change: That's clear that's helpful. Thank you and then.
Speaker Change: You guys have done a lot on I guess, you can kind of say the self help side of things the compressor stations et cetera.
Speaker Change: Understand there aren't a ton more assets kind of inside the fence to buy what is that.
Speaker Change: You can do on kind of optimizing the cost side, we've seen some of your peers kind of more on the.
Speaker Change: Permian talk about maybe some self powered projects anything like that on the radar for you guys.
Speaker Change: Yeah, I mean, I think we've talked about some of these in the past just around.
Speaker Change:
Speaker Change: And being the largest.
Speaker Change: Consumer of power in the state certainly theres opportunities to potentially look at behind the meter on those things but.
Speaker Change: Those are again in probably the early parts of conversation whether they move forward still early at this point so.
Speaker Change: But there are there are opportunities but.
Speaker Change: They are bolt on kind of in and around where we live today.
Speaker Change: That's all that's all I'd say at this point.
Speaker Change: That's interesting thanks for the time guys I appreciate it.
John: Thanks, John.
Speaker Change: The next question is from the line of Zach whenever with T. P. H. Please proceed with your questions.
Speaker Change: Hey, guys. Thanks for taking my question just a quick one on water you guys service 28 wells. This quarter I know you mentioned a lot of those or eight of those were kind of to the back of the quarter, you're still expecting to serve as the 70 to 75, you guys had in your guidance, which would kind of pointing towards a step down.
Speaker Change: For maybe Q2.
Speaker Change: Yes, we're still looking at that similar number I think those eight most of that volume. We tried to highlight it will fall into that that second quarter. So if you look at <unk> I would expect a pretty similar level of volume yet you had the second completion crew running for a month in the first quarter or any.
Speaker Change: I'll have it running for a month in the second quarter. So you should expect similar volumes there.
Speaker Change: Okay. That's helpful and then on the lateral lengths still expecting.
Speaker Change: <unk> thousand 200 now.
Speaker Change: Our length of keep.
Speaker Change: Completed came in a little bit higher, but that's still a good average to look at.
Speaker Change: Yeah, that's a good number to think about.
Speaker Change: I appreciate it thanks guys.
Speaker Change: Thanks.
Speaker Change: As a reminder, 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'll hand, the floor back to Justin Agnew for closing remarks.
Speaker Change: Thank you operator, and thank you everyone for joining today's conference call. Please feel free to reach out with any follow up questions.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].