Antero Midstream Corp: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The information provided below supplements, but does not form part of, our unaudited condensed consolidated financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see “Item 1A. Risk Factors” and the section entitled “Cautionary Statement Regarding Forward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law. In this section, references to “Antero Midstream,” “AM,” the “Company,” “we,” “us,” and “our” refer to Antero Midstream Corporation and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

Overview

We are a growth-oriented midstream energy company formed to own, operate and develop midstream energy assets to primarily service Antero Resources’ production and completion activity. We believe that our strategically located assets and our relationship with Antero Resources have allowed us to become a leading midstream energy company serving the Appalachian Basin and present opportunities to expand our midstream services to other operators in the Appalachian Basin. Our assets consist of gathering pipelines, compressor stations and interests in processing and fractionation plants that collect and process production from Antero Resources’ wells in the Appalachian Basin in West Virginia and Ohio. Our assets also include two independent water handling systems that deliver water from the Ohio River and several regional waterways. These water handling systems consist of permanent buried pipelines, surface pipelines and water storage facilities, as well as pumping stations, blending facilities and impoundments. Portions of these water handling systems are also utilized to transport flowback and produced water. These services are provided by us directly or through third-parties with which we contract.

Share Repurchase Program

During the three months ended March 31, 2025, we repurchased approximately 2 million shares of our common stock through our share repurchase program for a total cost of $29 million. As of March 31, 2025, we have approximately $443 million of capacity remaining under our share repurchase program. The shares may be repurchased from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will be determined by us at our discretion and will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and applicable legal requirements. The exact number of shares to be repurchased by us is not guaranteed and the program may be suspended, modified or discontinued at any time without prior notice.

Market Conditions and Business Trends

Commodity Markets

Benchmark prices for natural gas and NGLs increased, while benchmark prices for oil decreased during the three months ended March 31, 2025 as compared to the same period of 2024. While substantially all of our revenues are based on fixed-fee contracts that are not directly impacted by changes in commodity prices, commodity price changes do impact the revenues and cash flows of Antero Resources, and Antero Resources’ drilling and development plan does have a direct impact on our gathering, compression and water handling services, revenues and cash flows. In the current economic environment, we expect that commodity prices for some or all of the commodities produced by Antero Resources could remain volatile. However, due to Antero Resources’ improved liquidity and leverage position as compared to historical levels, we do not expect to experience significant variability in our throughput volumes resulting from volatile commodity prices.

Economic Indicators

The economy experienced elevated inflation levels as a result of global supply and demand imbalances, where global demand outpaced supplies beginning in 2021 and continuing through 2024. In order to manage the inflation risk present in the United States’ economy, the Federal Reserve utilized monetary policy in the form of interest rate increases beginning in March 2022 in an effort to bring the inflation rate in line with its stated goal of 2% on a long-term basis. Between March 2022 and July 2023, the Federal Reserve increased the federal funds interest rate by 5.25%. During the second half of 2024, inflation rates began to approach the Federal Reserve’s stated goal of 2%, and the Federal Reserve decreased the federal funds rate by

1.0% between September and December 2024. While inflationary pressures in the United States’ economy have begun to subside, it is uncertain what impact recent tariff activity by the United States and foreign governments will have on inflation.

The economy also continues to be impacted by global events. These events have often caused global supply chain disruptions with additional pressure due to trade sanctions, tariffs and other global trade restrictions, among others. While neither our nor Antero Resources’ supply chain has experienced any significant interruptions due to such events, there can be no assurance that we will not experience interruptions in the future.

Inflationary pressures and supply chain disruptions could result in further increases to our operating and capital costs that are not fixed. However, our gathering and compression and water agreements provide for annual CPI-based adjustments that mitigate a portion of such inflationary pressures.

These economic variables are beyond our control and may adversely impact our business, financial condition, results of operations and future cash flows.

Results of Operations

We have two reportable segments: (i) gathering and processing and (ii) water handling. The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and process production from Antero Resources’ wells in the Appalachian Basin, as well as equity in earnings from our investments in the Joint Venture and Stonewall. The Joint Venture and Stonewall provide processing and fractionation services and high-pressure gas gathering services, respectively, in the Appalachian Basin. The water handling segment includes (i) two independent systems that deliver water from sources including the Ohio River, local reservoirs and several regional waterways, and (ii) other fluid handling services, which include high rate transfer, wastewater transportation, disposal and blending. See Note 15—Reportable Segments to our unaudited condensed consolidated financial statements for additional information.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2025

The operating results of our reportable segments were as follows:

(in thousands)

(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

(in thousands)

(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

The operating data for Antero Midstream is as follows:

* Not meaningful or applicable.

(1) The average realized fees for the three months ended March 31, 2025 include annual CPI-based adjustments of approximately 1.6%.

Revenues. Total revenues increased by 4%, from $279 million for the three months ended March 31, 2024 to $291 million for the three months ended March 31, 2025. Total revenues included amortization of customer relationships of $18 million for each of the three months ended March 31, 2024 and 2025. Gathering and processing revenues increased by 5%, from $218 million for the three months ended March 31, 2024 to $229 million for the three months ended March 31, 2025. Water handling revenues increased by 3%, from $61 million for the three months ended March 31, 2024 to $62 million for the three months ended March 31, 2025. These fluctuations primarily resulted from the following:

Gathering and Processing

• Low pressure gathering revenue increased $2 million period over period primarily due to increased low pressure gathering rates as a result of annual CPI-based adjustments and increased throughput volumes of 1 Bcf, or 47 MMcf/d. Low pressure gathering volumes increased between periods primarily due to 65 additional wells being connected to our system since March 31, 2024, partially offset by natural production decline of the wells connected to our system between periods.
• Compression revenue increased $3 million period over period primarily due to increased compression rates as a result of annual CPI-based adjustments, two compressor stations that were acquired during the second quarter of 2024 and increased throughput volumes of 3 Bcf, or 70 MMcf/d. Compression volumes increased between periods primarily due to 65 additional wells being connected to our system since March 31, 2024, partially offset by natural production decline of the wells connected to our system between periods.
• High pressure gathering revenue increased $6 million period over period primarily due to increased high pressure gathering rates as a result of annual CPI-based adjustments, 48 miles of high pressure gathering lines acquired during the second quarter of 2024 and increased throughput volumes of 10 Bcf, or 140 MMcf/d. The high pressure gathering volumes increased period over period primarily due to 65 additional wells being connected to our system since March 31, 2024, partially offset by natural production decline of the wells connected to our system between periods.

Water Handling

• Fresh water delivery revenue decreased $3 million period over period primarily due to decreased fresh water delivery volumes of 1 MMBbl, or 8 MBbl/d, partially offset by an increase to the fresh water delivery rate for our long-term contract with Antero Resources as a result of the annual CPI-based adjustment. Fresh water delivery volumes decreased between periods primarily due to the timing of well completions by Antero Resources.
• Other fluid handling services revenue increased $4 million period over period primarily due to higher blending volumes, increased high-rate transfer services and higher wastewater handling costs, partially offset by lower wastewater trucking and disposal volumes between periods.

Direct operating expenses. Direct operating expenses increased by 5%, from $54 million for the three months ended March 31, 2024 to $57 million for the three months ended March 31, 2025. Gathering and processing direct operating expenses remained consistent at $26 million for each of the three months ended March 31, 2024 and 2025. Water handling direct operating expenses increased by 10%, from $28 million for the three months ended March 31, 2024 to $31 million for the three months ended March 31, 2025 primarily due to increased blending volumes and costs and higher wastewater handling costs between periods.

General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) remained relatively consistent at $12 million and $11 million for the three months ended March 31, 2024 and 2025, respectively.

Equity-based compensation expenses. Equity-based compensation expenses increased by 33%, from $9 million for the three months ended March 31, 2024 to $12 million for the three months ended March 31, 2025 primarily due to annual equity-based awards granted during the first quarters of 2024 and 2025. Our equity-based awards vest over three or four year service periods. See Note 9—Equity-Based Compensation to the unaudited condensed consolidated financial statements for additional information.

Depreciation expense. Depreciation expense decreased by 12%, from $37 million for the three months ended March 31, 2024 to $33 million for the three months ended March 31, 2025. This decrease was primarily due to lower depreciation expense of $5 million related to our program to repurpose underutilized compressor units to expand existing or construct new compressor stations, partially offset by depreciation expense of $1 million related to assets placed in service between periods.

Interest expense. Interest expense decreased by 9%, from $53 million for the three months ended March 31, 2024 to $48 million for the three months ended March 31, 2025 primarily due to lower interest expense for our 2026 Senior Notes that were fully retired during the second quarter of 2024 and lower rates on our Credit Facility borrowings, partially offset by higher Credit Facility borrowings between periods. See Note 7—Long-Term Debt to our unaudited condensed consolidated financial statements for additional information.

Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates remained consistent at $28 million for each of the three months ended March 31, 2024 and 2025.

Income tax expense. Income tax expense remained consistent at $36 million for each of the three months ended March 31, 2024 and 2025, which reflects effective tax rates of 26.0% and 23.0%, respectively. The decrease in the effective tax rate between periods is primarily due to higher equity-based compensation expenses.

Capital Resources and Liquidity

Sources and Uses of Cash

Capital resources and liquidity are provided by operating cash flows and available borrowings under our Credit Facility and capital market transactions. See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements. We expect that the combination of these capital resources will be adequate to meet our working capital requirements, capital expenditures program and expected quarterly cash dividends for at least the next 12 months.

Our Board declared a cash dividend on the shares of our common stock of $0.2250 per share for the quarter ended March 31, 2025. The dividend is payable on May 7, 2025 to stockholders of record as of April 23, 2025. Our Board also declared a cash dividend of $137,500 on the shares of Series A Preferred Stock that is payable on May 15, 2025 in accordance with their terms as discussed in Note 11—Equity and Net Income Per Common Share. As of March 31, 2025, there were dividends in the amount of $68,750 accumulated in arrears on our Series A Preferred Stock.

We expect our future cash requirements relating to working capital, capital expenditures, acquisitions and quarterly cash dividends to our stockholders will be funded from cash flows internally generated from our operations or borrowings under the Credit Facility.

As of March 31, 2025, we did not have any off-balance sheet arrangements.

Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2025:

(in thousands)

Operating activities. Net cash provided by operating activities was $211 million and $199 million for the three months ended March 31, 2024 and 2025, respectively. This decrease between periods was primarily due to higher cash paid for interest due to the timing of the semi-annual payments on our Senior Notes and increased direct operating expenses, partially offset by higher gathering and processing and water handling revenues.

Investing activities. Net cash flows used in investing activities was $37 million and $32 million for the three months ended March 31, 2024 and 2025, respectively. The decrease in cash flows used in investing activities between periods was primarily due to lower capital spending and acquisitions related to our gathering systems and facilities of $8 million, partially offset by additional investment in Stonewall of $2 million and higher capital spending on our water handling systems of $1 million between periods.

Financing activities. Net cash used in financing activities was $147 million and $167 million for the three months ended March 31, 2024 and 2025, respectively. The increase in cash flows used in financing activities between periods was primarily due to higher common stock repurchases of $29 million, payments of employee tax withholdings for the settlement of equity-based compensation awards of $18 million and dividends to common stockholders of $5 million between periods, partially offset by refinancing of our Credit Facility borrowings with the issuance of our 2032 Senior Notes during the first quarter of 2024.

2025 Capital Investment

On February 12, 2025, we announced a capital budget with a range of $170 million to $200 million. This capital budget supports Antero Resources’ maintenance capital program for 2025. Our capital budget may be adjusted as business conditions warrant. Additionally, we monitor our existing assets and look for opportunities to reuse or otherwise repurpose assets in an effort to optimize our capital efficiency.

Our capital expenditures were as follows:

(in thousands)

29

Debt Agreements

See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements and to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Form 10-K for additional information.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. Any new accounting policies or updates to existing accounting policies as a result of recently adopted accounting standards have been included in Note 2—Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. Accounting estimates and assumptions are considered to be critical if there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported amounts in our unaudited condensed consolidated financial statements that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our unaudited condensed consolidated financial statements. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2024 Form 10-K for additional information.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in commodity prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.

Commodity Price Risk

Our gathering and compression and water services agreements with Antero Resources provide for fixed-fee and cost of service fee structures, and we intend to continue to pursue additional fixed-fee or cost of service fee opportunities with Antero Resources and third parties in order to avoid direct commodity price exposure. However, to the extent that our future contractual arrangements with Antero Resources or third parties do not provide for fixed-fee or cost of service fee structures, we may become subject to commodity price risk. We are subject to commodity price risks to the extent that they impact Antero Resources’ development program and production and therefore our gathering, compression, and water handling volumes. We cannot predict to what extent our business would be impacted by lower commodity prices and any resulting impact on Antero Resources’ operations.

Interest Rate Risk

Our primary exposure to interest rate risk results from outstanding borrowings under the Credit Facility, which has a floating interest rate. We do not currently, but may in the future, hedge the interest on portions of our borrowings under the Credit Facility from time-to-time in order to manage risks associated with floating interest rates. As of March 31, 2025, we had $477 million of borrowings and no letters of credit outstanding under the Credit Facility. A 1.0% increase in the Credit Facility interest rate would have resulted in an estimated $1 million increase in interest expense for the three months ended March 31, 2025.

Credit Risk

We are dependent on Antero Resources as our primary customer, and we expect to derive substantially all of our revenues from Antero Resources for the foreseeable future. As a result, any event, whether in our area of operations or otherwise, that adversely affects Antero Resources’ production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of operations or cash flows may adversely affect our revenues and operating results.

Further, we are subject to the risk of non-payment or non-performance by Antero Resources, including with respect to our gathering and compression and water handling services agreements. We cannot predict the extent to which Antero Resources’ business would be impacted if conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on Antero Resources’ ability to execute its drilling and development program or to perform under our agreements. Any material non-payment or non-performance by Antero Resources could adversely affect our revenues and operating results and our ability to return capital to stockholders.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2025 at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are subject to certain risks and hazards due to the nature of the business activities we conduct. For a discussion of these risks, see “Item 1A. Risk Factors” in the 2024 Form 10-K. There have been no material changes to the risks described in such report. We may experience additional risks and uncertainties not currently known to us. Furthermore, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect us.