Equitrans Midstream Corporation (NYSE: ETRN) and EQM Midstream
Partners, LP (NYSE: EQM), today, announced financial and
operational results for the first quarter 2020.
Q1 2020 Highlights:
- Delivered strong first quarter 2020 financial results ahead of
plan
- Raised full-year 2020 estimated earnings and cash flow
guidance
- Reduced full-year 2020 total capital expenditures and capital
contribution forecast by $150 million
- Generated 58% of total operating revenue from firm reservation
fees
- Increased fresh water delivery and achieved water EBITDA above
expectations
- Expected to close ETRN acquisition of EQM in June 2020
“Our business remains resilient in the current environment as
highlighted by the strength of our first quarter operating and
financial results. Our long-term contracts, increasing take-or-pay
revenues, and minimal exposure to NGL volumes provide the core
pillars for success in this or any environment,” said Thomas F.
Karam, ETRN chairman and chief executive officer. “The new 15-year
gathering agreement reached with EQT during the quarter further
solidifies the stability of our cash flows and sets us on the path
to significant free cash flow generation.”
“Since the onset of the COVID-19 pandemic, we have not
experienced any material disruptions to our operations and have
worked to ensure that the safety of our employees, contractors,
families, and communities remains our top priority,” added Diana
Charletta, ETRN president and chief operating officer. “As a result
of the recent increase in natural gas strip prices, our producer
customers are becoming stronger and we are optimistic that the
activity level across our operating areas will remain steady. As we
progress through the year, we will continue collaborating with our
customers in order to optimize future development plans and
maintain our acute focus on capital efficiency.”
FIRST QUARTER 2020 RESULTS
ETRN announced net income attributable to ETRN of $69.7 million
and earnings per diluted share attributable to ETRN of $0.28 for
the first quarter 2020. After adjusting for several non-recurring
items and an unrealized gain on derivative instruments, ETRN
reported adjusted net income attributable to ETRN of $117.9 million
and adjusted earnings per diluted share attributable to ETRN of
$0.46 for the first quarter 2020. See "Non-GAAP Disclosures" for
important disclosures regarding the use of non-GAAP supplemental
financial measures included in this news release, including
information regarding their most comparable GAAP financial
measures.
For the quarter, ETRN also reported net cash provided by
operating activities of $249.3 million, free cash flow (FCF) of
$31.2 million and retained free cash flow (RFCF) of $(179.5)
million. FCF and RFCF are non-GAAP financial measures that ETRN
began reporting with the first quarter 2020 financial results. More
information, including the definitions of FCF and RFCF, are located
in the Non-GAAP Disclosures section of this news release.
EQM announced the following financial results for the first
quarter 2020:
$ millions
Net income attributable to EQM
$251.7
Adjusted EBITDA
$381.3
Net cash provided by operating
activities
$285.1
Distributable cash flow (DCF)
$283.1
Net income attributable to ETRN and EQM for the first quarter
2020 was impacted by a $55.6 million impairment of long-lived
assets associated with the Hornet gathering system, which was
acquired by EQM in April 2019. Net income attributable to ETRN was
also impacted by a $24.9 million loss on early extinguishment of
debt associated with the retirement of the ETRN Term Loan B during
the quarter and termination of ETRN's revolving credit
facility.
Additionally, net income attributable to ETRN and EQM was
impacted by a $4.2 million unrealized gain on derivative
instruments, which is reported within other income. As announced on
February 27, 2020, EQM and EQT Corporation (EQT) entered into a
contract in which EQM will receive cash from EQT conditioned on the
quarterly average of the NYMEX Henry Hub first-of-the-month closing
index price exceeding certain thresholds during the three years
following Mountain Valley Pipeline's (MVP) in-service, but in no
case extending beyond December 2024. The contract is accounted for
as a derivative with the fair value marked-to-market at each
quarter-end, and the associated gain or loss recognized as income
(expense). The fair value of the asset as of March 31, 2020 was
$55.7 million.
For the first quarter 2020, EQM operating revenue increased by
$63.3 million, or 16.2%, compared to the same quarter last year.
The increase in revenue was primarily related to the addition of
the Eureka and Hornet assets and increased water revenue and was
partially offset by lower transmission revenue. EQM operating
expenses increased by $79.9 million compared to the first quarter
2019, with $55.6 million related to the impairment charges and the
remaining increase primarily from the addition of the Eureka and
Hornet assets.
QUARTERLY DIVIDEND AND DISTRIBUTION
ETRN
For the first quarter 2020, ETRN will pay a quarterly cash
dividend of $0.15 per share on May 21, 2020 to ETRN shareholders of
record at the close of business on May 12, 2020.
EQM
For the first quarter 2020, EQM will pay a quarterly cash
distribution of $0.3875 per common unit on May 14, 2020 to EQM
common unitholders of record at the close of business on May 5,
2020.
For the first quarter 2020, EQM will pay a quarterly cash
distribution on the Series A Preferred Units of $1.0364 per Series
A Preferred Unit on May 14, 2020 to all Series A preferred
unitholders of record at the close of business on May 5, 2020.
EQM EXPANSION AND ONGOING MAINTENANCE CAPITAL
EXPENDITURES
Expansion
Expansion capital expenditures and capital contributions to
Mountain Valley Pipeline, LLC (MVP JV) were $149 million for the
first quarter 2020.
$MM
Three Months Ended March 31,
2020
2020 Full-year
Forecast
MVP JV
$45
$600 - $640
Gathering(1)
$92
$350 - $370
Transmission(2)
$9
$60 - $80
Water
$3
$15
Total
$149
$1,025 - $1,105
(1)
Includes 60% of Eureka expansion capital
expenditures.
(2)
Includes capital contributions to MVP JV
for the MVP Southgate project.
Ongoing Maintenance
Ongoing maintenance capital expenditures are cash expenditures
made to maintain, over the long-term, EQM operating capacity or
operating income. EQM ongoing maintenance capital expenditures, net
of expected reimbursements and excluding the non-controlling
interest share of Eureka, were $9.0 million for the first quarter
2020. EQM forecasts full-year 2020 ongoing maintenance capital
expenditures of $55 million, excluding the non-controlling interest
share of Eureka.
OUTLOOK
Pro forma ETRN forecast
The 2020 forecast is pro forma for the pending acquisition of
EQM, which is expected to close in June. ETRN and EQM have no
financial guidance or operational guidance past 2020.
After completing the acquisition of EQM, ETRN intends to
discontinue reporting DCF and ongoing maintenance capital
expenditures as those metrics are primarily used by master limited
partnerships and management believes that free cash flow and
retained free cash flow will provide more useful information to
C-corporation investors.
$ millions
Q2 2020
Net income attributable to ETRN(1)
$35 - $50
Adjusted EBITDA
$255 - $275
Deferred revenue(2)
$75
$ millions
Full-year 2020
Net income attributable to ETRN(1)
$390 - $425
Adjusted EBITDA
$1,150 - $1,200
Deferred revenue(2)
$227
Free cash flow(3)
$(100) - $(150)
Retained free cash flow(3)
$(510) - $(560)
(1)
Includes $15 - $20 million of expected
transaction costs in Q2 2020.
(2)
On February 26, 2020, EQM and EQT entered
into a new gas gathering agreement. As a result of the new
agreement, and beginning in Q2 2020, revenue under the EQT contract
will be recognized based on an average gathering rate applied to
each period's minimum volume commitment (MVC) over the 15-year
contract life. The actual cash received under the contract is
expected to be higher than the revenue recognized in the early
years of contract, resulting in the deferral of revenue into future
periods and a corresponding contract liability. The deferred
revenue amounts are subject to the ultimate in-service date of MVP.
The current deferred revenue estimate is based on MVP's targeted
year-end 2020 in-service date.
(3)
ETRN's forecasts for free cash flow and
retained free cash flow take into account the impact of transaction
costs associated only with ETRN's pending acquisition of EQM;
ETRN's purchase of its shares from EQT and EQM's new gas gathering
agreement with EQT; and related transactions.
BUSINESS AND PROJECT UPDATES
ETRN Acquisition of EQM and Series A Convertible Preferred
Units
On February 27, 2020, ETRN and EQM announced a share-for-unit
exchange via merger in which each outstanding public common unit of
EQM would be exchanged for 2.44 shares of ETRN common stock. The
merger is subject to customary closing conditions and the approval
of ETRN shareholders and EQM unitholders. The ETRN shareholder vote
and the EQM unitholder vote are each scheduled for June 15, 2020
and, assuming approvals are received and closing conditions
satisfied, the transaction is expected to close in June 2020.
In connection with the closing of the acquisition of EQM, $600
million of outstanding EQM Series A Convertible Preferred Units
will be repurchased by EQM. The remaining $600 million of
outstanding EQM Series A Convertible Preferred Units will be
exchanged for $600 million of newly issued ETRN Series A
Convertible Preferred Shares.
ETRN Share Purchase
On March 5, 2020, ETRN completed the purchase of 25.3 million
ETRN common shares from EQT. ETRN paid $52 million of upfront cash
consideration to EQT and the remaining consideration will be paid
through reduced gathering fees in the two years following MVP’s
in-service date.
ETRN Term Loan B
On March 3, 2020, ETRN paid off the $600 million ETRN Term Loan
B with cash provided through an intercompany loan from EQM. The
intercompany loan was funded with borrowings under the EQM
revolving credit facility.
Outstanding Debt and Liquidity
As of March 31, 2020, EQM had long-term debt of $4.9 billion,
$1.4 billion of borrowings and $235 million of letters of credit
outstanding under its $3 billion revolving credit facility, and $14
million of cash. As of March 31, 2020, ETRN had zero long-term debt
and $62 million of cash.
Water Services
In the first quarter 2020, EQM delivered 593 MMgal of fresh
water, a 60% increase from the prior year quarter. EQM generated
approximately $25 million of water EBITDA in the first quarter and
EQM forecasts $60 - $65 million of water EBITDA for the full-year
2020.
Mountain Valley Pipeline
MVP JV is working through the project’s remaining legal and
regulatory challenges and continues to have a narrow path to
achieve the targeted late 2020 full in-service date at an overall
project cost of approximately $5.4 billion. Based on the MVP JV's
current budget for the project, EQM expects to fund approximately
$2.7 billion of the total project cost and, through March 31, 2020,
has funded approximately $2.1 billion.
Hammerhead Pipeline
Hammerhead is a gathering header pipeline that will span
approximately 64 miles from southwestern Pennsylvania to Mobley,
West Virginia, where both MVP and the Ohio Valley Connector
originate. With a total estimated project cost of $555 million, the
pipeline is expected to provide 1.6 Bcf per day of capacity, of
which 1.2 Bcf per day is contracted under a 20-year firm capacity
commitment by EQT. EQM has invested a total of approximately $490
million in the Hammerhead project through Q1 2020. The Hammerhead
project is expected to become operational in the second quarter of
2020 and will provide interruptible service until the MVP is placed
in-service, at which time the firm capacity commitment will
begin.
Q1 2020 Earnings Conference Call Information
ETRN and EQM will host a joint conference call with security
analysts today, May 14, 2020, at 10:30 a.m. (ET) to discuss first
quarter 2020 financial results, operating results, and other
business matters. An audio live stream of the call will be
available on the Internet via the Investors page at
www.equitransmidstream.com and www.eqm-midstreampartners.com.
Security analysts may access the call: U.S. tollfree at (833)
968-2185; and internationally at (778) 560-2843. The ETRN/EQM joint
conference ID is 5710108.
Call Replay: For 14 days following the call, an audio
replay will be available at (800) 585-8367 or (416) 621-4642. The
ETRN/EQM conference ID: 5710108.
ETRN and EQM management speak to investors from time-to-time and
the presentation for these discussions, which is updated
periodically, is available via the companies' respective websites
at www.equitransmidstream.com and
www.eqm-midstreampartners.com.
NON-GAAP DISCLOSURES
Adjusted Net Income Attributable to ETRN and Adjusted
Earnings per Diluted Share
Adjusted net income attributable to ETRN and adjusted earnings
per diluted share are non-GAAP supplemental financial measures that
management and external users of ETRN’s consolidated financial
statements, such as investors, may use to make period-to-period
comparisons of earnings trends. Management believes that adjusted
net income attributable to ETRN and adjusted earnings per diluted
share as presented provide useful information for investors for
evaluating period-over-period earnings. Adjusted net income
attributable to ETRN and adjusted earnings per diluted share should
not be considered as alternatives to net income attributable to
ETRN, earnings per diluted share or any other measure of financial
performance presented in accordance with GAAP. Adjusted net income
attributable to ETRN and adjusted earnings per diluted share as
presented have important limitations as analytical tools because
they exclude some, but not all, items that affect net income
attributable to ETRN and earnings per diluted share, including
separation and transaction costs, impairments of long-lived assets,
changes in the fair value of derivative instruments and loss on
early extinguishment of debt, which items affect the comparability
of results period to period. The impact of noncontrolling interests
is also excluded from the calculations of adjustment items to
adjusted net income attributable to ETRN, as is the tax impact of
non-GAAP items. Additionally, because these non-GAAP metrics may be
defined differently by other companies in ETRN's industry, ETRN's
definitions of adjusted net income attributable to ETRN and
adjusted earnings per diluted share may not be comparable to
similarly titled measures of other companies, thereby diminishing
the utility of the measures. Adjusted net income attributable to
ETRN and adjusted earnings per diluted share should not be viewed
as indicative of the actual amount of net income attributable to
ETRN or actual earnings of ETRN in any given period.
The table below reconciles adjusted net income attributable to
ETRN and adjusted earnings per diluted share with net income
attributable to ETRN and earnings per diluted share as derived from
the statements of consolidated comprehensive income to be included
in ETRN’s Quarterly Report on Form 10-Q for the three months ended
March 31, 2020.
Reconciliation of Adjusted Net Income Attributable to ETRN
and Adjusted Earnings per Diluted Share (ETRN)
Three Months Ended March
31,
(Thousands, except per share
information)
2020
2019
Net income attributable to ETRN
$
69,732
$
56,299
Add back / (deduct):
Separation and transaction costs
11,360
8,782
Impairments of long-lived assets
55,581
—
Unrealized gain on derivative
instruments
(4,170
)
—
Loss on early extinguishment of debt
24,864
—
Noncontrolling interest impact of non-GAAP
items
(22,267
)
(1,986
)
Tax impact of non-GAAP items(1)
(17,190
)
(1,787
)
Adjusted net income attributable to
ETRN
$
117,910
$
61,308
Diluted weighted average common shares
outstanding
248,591
254,827
Adjusted earnings per diluted share(2)
$
0.46
$
0.24
(1)
The adjustments were tax effected at the
Company’s federal and state statutory tax rate for each period.
(2)
Adjusted earnings per diluted share
includes the impact of using the if-converted method to calculate
the dilutive effect of the Series A Preferred Units for the three
months ended March 31, 2020.
Adjusted EBITDA
As used in this news release, Adjusted EBITDA means EQM net
income, plus net interest expense, depreciation, amortization of
intangible assets, impairments of long-lived assets, payments on
the preferred interest in EQT Energy Supply, LLC (Preferred
Interest), non-cash long-term compensation expense, and separation
and other transaction costs, less equity income, AFUDC - equity,
unrealized gain (loss) on derivative instruments and adjusted
EBITDA attributable to noncontrolling interest.
As used in this news release, pro forma ETRN Adjusted EBITDA
means pro forma ETRN net income, plus net interest expense,
depreciation, amortization of intangible assets, impairments of
long-lived assets, Preferred Interest payments, non-cash long-term
compensation expense, and separation and other transaction costs,
less equity income, AFUDC - equity, unrealized gain (loss) on
derivative instruments and adjusted EBITDA attributable to
noncontrolling interest.
Distributable Cash Flow
As used in this news release, distributable cash flow means EQM
adjusted EBITDA, less net interest expense excluding interest
income on the Preferred Interest, capitalized interest and AFUDC -
debt, ongoing maintenance capital expenditures net of expected
reimbursements, and cash distributions earned by Series A preferred
unitholders.
Reconciliation of Adjusted EBITDA and Distributable Cash Flow
(EQM)
Three Months Ended March
31,
(Thousands, except coverage ratio)
2020
2019
Net income
$
255,285
$
251,931
Add:
Net interest expense
54,531
49,356
Depreciation
61,114
47,065
Amortization of intangible assets
14,581
10,387
Impairments of long-lived assets
55,581
—
Preferred Interest payments
2,764
2,746
Non-cash long-term compensation
expense
285
255
Separation and other transaction costs
4,104
3,513
Less:
Equity income
(54,072
)
(31,063
)
AFUDC – equity
(236
)
(2,346
)
Unrealized gain on derivative
instruments
(4,170
)
—
Adjusted EBITDA attributable to
noncontrolling interest(1)
(8,515
)
—
Adjusted EBITDA
$
381,252
$
331,844
Less:
Net interest expense excluding interest
income on the Preferred Interest(2)
(55,024
)
(50,962
)
Capitalized interest and AFUDC –
debt(2)
(8,671
)
(4,687
)
Ongoing maintenance capital expenditures
net of expected reimbursements(2)
(8,996
)
(9,398
)
Series A Preferred Unit
distributions(4)
(25,501
)
—
Distributable cash flow
$
283,060
$
266,797
Distributions declared(3):
Limited Partner
$
77,677
$
229,524
Coverage ratio
3.64x
1.16x
Net cash provided by operating
activities
$
285,136
$
160,973
Adjustments:
Capitalized interest and AFUDC –
debt(2)
(8,671
)
(4,687
)
Principal payments received on the
Preferred Interest
1,225
1,141
Ongoing maintenance capital expenditures
net of expected reimbursements(2)
(8,996
)
(9,398
)
Adjusted EBITDA attributable to
noncontrolling interest(1)
(8,515
)
—
Series A Preferred Unit
distributions(4)
(25,501
)
—
Other, including changes in working
capital
48,382
118,768
Distributable cash flow
$
283,060
$
266,797
(1)
Reflects adjusted EBITDA attributable to
noncontrolling interest associated with the third-party ownership
interest in Eureka. Adjusted EBITDA attributable to noncontrolling
interest for the three months ended March 31, 2020 was calculated
as net income of $3.6 million plus depreciation of $2.7 million,
plus amortization of intangible assets of $1.2 million, and plus
interest expense of $1.0 million.
(2)
Does not reflect amounts related to the
noncontrolling interest share of Eureka.
(3)
Reflects cash distribution declared of
$0.3875 per common unit for the first quarter of 2020 and
200,457,630 common units outstanding as of March 31, 2020.
Distributions declared to noncontrolling interest unitholders for
Q1 2020 will be paid in May 2020.
(4)
Reflects cash distribution declared of
$1.0364 per Series A Preferred Unit for the first quarter of
2020.
Free Cash Flow
As used in this news release, ETRN’s free cash flow means ETRN’s
net cash provided by operating activities plus principal payments
received on the Preferred Interest, and less net cash provided by
operating activities attributable to noncontrolling interest,
capital expenditures (excluding the noncontrolling interest share
(40%) of Eureka capital expenditures), capital contributions to MVP
JV, and distributions paid to Series A Preferred
unitholders/shareholders (as applicable).
ETRN previously defined its free cash flow as EQM’s DCF plus
changes in net working capital, less growth capital expenditures
(excluding 40% of Eureka growth capital expenditures), and less
capital contributions to MVP JV. In connection with ETRN’s
announcement that it intends to discontinue reporting DCF following
its acquisition of EQM, ETRN has updated its definition of free
cash flow to use adjustments derived solely from its statements of
consolidated cash flows and eliminate the calculation derived from
DCF. ETRN’s free cash flow for both periods presented in the table
below is reconciled to net cash provided by operating activities,
to be included in ETRN's statements of consolidated cash flows in
ETRN's Quarterly Report on Form 10-Q for the three months ended
March 31, 2020, per ETRN’s updated definition of free cash
flow.
Retained Free Cash Flow
As used in this news release, ETRN’s retained free cash flow
means free cash flow less dividends paid and distributions paid to
noncontrolling interest unitholders. ETRN and EQM paid out
aggregate dividends of $114.3 million and aggregate distributions
to noncontrolling interest unitholders of $96.5 million,
respectively, during the first quarter of 2020, and declared
aggregate dividends of $34.4 million and aggregate distributions of
$32.2 million, respectively, during the first quarter of 2020.
Reconciliation of Free Cash Flow and Retained Free Cash Flow
(ETRN)
Three Months Ended March
31,
(Thousands)
2020
2019
Net cash provided by operating
activities
$
249,303
$
122,201
Add back / (deduct):
Principal payments received on the
Preferred Interest
1,225
1,141
Net cash provided by operating activities
attributable to noncontrolling interest(1)
(9,245
)
—
Series A Preferred Unit
distributions(2)
(25,501
)
—
Capital expenditures(3)
(139,394
)
(208,966
)
Capital contributions to MVP JV
(45,150
)
(144,763
)
Free cash flow(4)
$
31,238
$
(230,387
)
Less:
Dividends paid(5)
(114,254
)
(104,251
)
Distributions paid to noncontrolling
interest unitholders(5)
(96,526
)
(94,030
)
Retained free cash flow
$
(179,542
)
$
(428,668
)
(1)
Reflects 40% of $23.1 million, or Eureka’s
standalone net cash provided by operating activities, representing
the non-controlling interest portion.
(2)
Reflects cash distribution paid of $1.0364
per Series A Preferred Unit for the first quarter of 2020.
(3)
Does not reflect amounts related to the
non-controlling interest share of Eureka.
(4)
ETRN’s free cash flow for the three months
ended March 31, 2020 and 2019, if calculated utilizing ETRN’s prior
definition derived from DCF, would have been $42.6 million and
$(221.6) million, respectively. ETRN’s calculations of free cash
flow for the three months ended March 31, 2020 and 2019 under
ETRN’s updated definition of free cash flow are $11.4 million and
$8.8 million lower than the respective calculations under the prior
definition because ETRN’s historical calculation of DCF excluded
the impact of separation and transaction costs. ETRN believes that
its calculation of free cash flow inclusive of the impact of
separation and transaction costs is more reflective of the amount
of cash available for corporate initiatives, which may include
reducing debt, paying dividends and distributions, repurchasing
shares, and similar matters.
(5)
Dividends paid and distributions paid to
noncontrolling interest unitholders during the first quarter 2020
were based on the fourth quarter 2019 dividend of $0.45 per ETRN
share and fourth quarter 2019 distributions of $1.16 per EQM common
unit. The first quarter 2020 dividend declared was $0.15 per ETRN
share and the distributions declared was $0.3875 per EQM common
unit. Dividends declared and distributions declared to
noncontrolling interest unitholders for the first quarter 2020 will
be paid in May 2020.
Adjusted EBITDA, distributable cash flow, free cash flow and
retained free cash flow are non-GAAP supplemental financial
measures that management and external users of ETRN's and EQM’s
consolidated financial statements, such as industry analysts,
investors, lenders, and rating agencies, may use to assess:
- ETRN’s and EQM’s operating performance as compared to other
publicly traded companies in the midstream energy industry without
regard to historical cost basis or, in the case of adjusted EBITDA,
financing methods
- The ability of ETRN’s and EQM’s assets to generate sufficient
cash flow to make distributions to ETRN’s shareholders and EQM’s
unitholders, as applicable
- ETRN’s and EQM’s ability to incur and service debt and fund
capital expenditures and capital contributions
- The viability of acquisitions and other capital expenditure
projects and the returns on investment of various investment
opportunities
ETRN and EQM believe that adjusted EBITDA, distributable cash
flow, free cash flow, and retained free cash flow provide useful
information to investors in assessing ETRN's and EQM’s financial
condition and results of operations. Adjusted EBITDA, distributable
cash flow, free cash flow, and retained free cash flow should not
be considered as alternatives to net income, operating income, net
cash provided by operating activities or any other measure of
financial performance or liquidity presented in accordance with
GAAP. Adjusted EBITDA, distributable cash flow, free cash flow, and
retained free cash flow have important limitations as analytical
tools because they exclude some, but not all, items that affect net
income, operating income and net cash provided by operating
activities. Additionally, because these non-GAAP metrics may be
defined differently by other companies in ETRN's and EQM’s
industry, ETRN's and EQM’s definitions of adjusted EBITDA,
distributable cash flow, free cash flow, and retained free cash
flow may not be comparable to similarly titled measures of other
companies, thereby diminishing the utility of the measures.
Distributable cash flow, free cash flow and retained free cash flow
should not be viewed as indicative of the actual amount of cash
that ETRN and EQM have available for dividends and distributions,
as applicable, or that ETRN or EQM plan to distribute and are not
intended to be liquidity measures.
ETRN and EQM are unable to provide a reconciliation of projected
adjusted EBITDA from projected net income attributable to ETRN, the
most comparable financial measure calculated in accordance with
GAAP, or a reconciliation of projected free cash flow or retained
cash flow to net cash provided by operating activities, the most
comparable financial measure calculated in accordance with GAAP.
ETRN and EQM have not provided a reconciliation of projected
adjusted EBITDA to projected net income (loss), the most comparable
financial measure calculated in accordance with GAAP, due to the
inherent difficulty and impracticability of predicting certain
amounts required by GAAP with a reasonable degree of accuracy. Net
(loss) income includes the impact of depreciation expense, income
tax expense, the revenue impact of changes in the projected fair
value of derivative instruments prior to settlement, potential
changes in estimates for certain contract liabilities and unbilled
revenues and certain other items that impact comparability between
periods and the tax effect of such items, which may be significant
and difficult to project with a reasonable degree of accuracy.
Therefore, a reconciliation of projected adjusted EBITDA to
projected net income (loss) is not available without unreasonable
effort.
ETRN and EQM are unable to project net cash provided by
operating activities because this metric includes the impact of
changes in operating assets and liabilities related to the timing
of cash receipts and disbursements that may not relate to the
period in which the operating activities occurred. ETRN and EQM are
unable to project these timing differences with any reasonable
degree of accuracy to a specific day, three or more months in
advance. Therefore, ETRN and EQM are unable to provide projected
net cash provided by operating activities, or the related
reconciliation of each of projected free cash flow and projected
retained free cash flow to projected net cash provided by operating
activities without unreasonable effort. ETRN and EQM provide a
range for the forecasts of net income attributable to ETRN,
adjusted EBITDA, free cash flow and retained free cash flow to
allow for the inherent difficulty of predicting certain amounts and
the variability in the timing of spending and the impact on the
related reconciling items, many of which interplay with each
other.
Water EBITDA
As used in this news release, water EBITDA means the earnings
before interest, taxes, depreciation and amortization of EQM’s
water services business. Water EBITDA is a non-GAAP supplemental
financial measure that management and external users of EQM’s
consolidated financial statements, such as industry analysts,
investors, lenders and rating agencies, use to assess the impact of
EQM’s water services business on EQM’s operating performance and
EQM’s ability to incur and service debt and fund capital
expenditures. Water EBITDA should not be considered as an
alternative to EQM’s net income, operating income or any other
measure of financial performance presented in accordance with GAAP.
Water EBITDA has important limitations as an analytical tool
because the measure excludes some, but not all, items that affect
net income and operating income. Additionally, because water EBITDA
may be defined differently by other companies in EQM’s industry,
the definition of water EBITDA may not be comparable to similarly
titled measures of other companies, thereby diminishing the utility
of the measure. The table below reconciles water EBITDA from EQM's
water operating income as derived from EQM's statements of
consolidated operations to be included in EQM's Quarterly Report on
Form 10-Q for the three months ended March 31, 2020.
EQM has not provided a reconciliation of projected water EBITDA
from projected water operating income, the most comparable measure
calculated in accordance with GAAP. EQM does not allocate certain
costs, such as interest expenses, to individual assets within its
business segments. Therefore, the reconciliation of projected water
EBITDA from projected water operating income is not available
without unreasonable effort. EQM has provided a range for the
forecast of water EBITDA to allow for the variability in the timing
of spending and the impact on the related reconciling items, many
of which interplay with each other.
Reconciliation of Water EBITDA (EQM)
Three Months Ended March
31,
(Thousands)
2020
2019
Water operating income
$
17,752
$
1,186
Add: Depreciation
7,116
6,416
Water EBITDA
$
24,868
$
7,602
About Equitrans Midstream Corporation:
Equitrans Midstream Corporation (ETRN) has a premier asset
footprint in the Appalachian Basin and is one of the largest
natural gas gatherers in the United States. With a rich 135-year
history in the energy industry, ETRN was launched as a standalone
company in 2018 and, through its subsidiaries, has an operational
focus on gas gathering systems, transmission and storage systems,
and water services assets that support natural gas producers across
the Basin. ETRN is helping to meet America’s growing need for
clean-burning energy, while also providing a rewarding workplace
and enriching the communities where its employees live and work.
ETRN owns the non-economic general partner interest and a majority
ownership of the limited partner interest in EQM.
Visit Equitrans Midstream Corporation at
www.equitransmidstream.com
About EQM Midstream Partners:
EQM Midstream Partners, LP (EQM) is a growth-oriented limited
partnership formed to own, operate, acquire, and develop midstream
assets in the Appalachian Basin. As one of the largest gatherers of
natural gas in the United States, EQM provides midstream services
to producers, utilities, and other customers through its
strategically located natural gas transmission, storage, and
gathering systems, and water services to support energy development
and production in the Marcellus and Utica regions. EQM owns
approximately 950 miles of FERC-regulated interstate pipelines and
also owns and/or operates approximately 1,900 miles of high- and
low-pressure gathering lines.
Visit EQM Midstream Partners, LP at
www.eqm-midstreampartners.com
Cautionary Statements
This news release contains certain forward-looking statements
within the meaning of Section 21E of the United States Securities
Exchange Act of 1934, as amended (the Exchange Act), and Section
27A of the United States Securities Act of 1933, as amended (the
Securities Act), concerning ETRN and EQM, the proposed transactions
and other matters. These statements may discuss goals, intentions
and expectations as to future plans, trends, events, results of
operations or financial condition, or otherwise, based on current
beliefs of the management of ETRN and EQM, as well as assumptions
made by, and information currently available to, such management.
Words such as “could,” “will,” “may,” “assume,” “forecast,”
“position,” “predict,” “strategy,” “expect,” “intend,” “plan,”
“estimate,” “anticipate,” “believe,” “project,” “budget,”
“potential,” or “continue,” and similar expressions are used to
identify forward-looking statements. These statements are subject
to various risks and uncertainties, many of which are outside the
parties’ control. Without limiting the generality of the foregoing,
forward-looking statements contained in this communication
specifically include expectations of plans, strategies, objectives
and growth and anticipated financial and operational performance of
ETRN, EQM and their respective affiliates, including whether the
proposed transactions will be completed, as expected or at all, the
timing of the closing of the proposed transactions, whether the
conditions to the proposed transactions can be satisfied, guidance
regarding EQM's gathering, transmission and storage and water
service revenue and volume growth, including the anticipated
effects associated with the new Gas Gathering and Compression
Agreement and related documents entered into with EQT Corporation
(EQT) as described herein (collectively, the EQT Global GGA);
projected revenue (including from firm reservation fees and
deferred revenues), expenses, and contract liabilities and the
effects on projected revenue and contract liabilities associated
with the EQT Global GGA and the MVP project; the ultimate gathering
fee relief provided to EQT under the EQT Global GGA and related
agreements, including the exercise by EQT of any cash-out option as
an alternative to receiving relief; ETRN’s and EQM’s ability to
de-lever; forecasted adjusted EBITDA, water EBITDA, net income, net
income attributable to ETRN, adjusted net income attributable to
ETRN, net cash provided by operating activities, distributable cash
flow, free cash flow, retained free cash flow, leverage ratio,
coverage ratio, and deferred revenue; the weighted average contract
life of gathering, transmission and storage contracts;
infrastructure programs (including the timing, cost, capacity and
sources of funding with respect to gathering, transmission and
storage and water expansion projects); the cost, capacity, timing
of regulatory approvals, final design and targeted in-service dates
of current projects; the ultimate terms, partners and structure of
Mountain Valley Pipeline, LLC (MVP JV) and ownership interests
therein; expansion projects in EQM's operating areas and in areas
that would provide access to new markets; EQM's ability to provide
produced water handling services and realize expansion
opportunities and related capital avoidance; ETRN’s and EQM's
ability to identify and complete acquisitions and other strategic
transactions, including the proposed merger with EQM and joint
ventures, effectively integrate transactions into ETRN’s and EQM's
operations, and achieve synergies, system optionality and accretion
associated with transactions, including through increased scale;
EQM's ability to access commercial opportunities and new customers
for its water services business, and the timing and final terms of
any definitive water services agreement or agreements between EQT
and EQM entered into pursuant to the letter agreement between the
parties in respect of water services (Water Services Letter
Agreement); any further credit rating impacts associated with the
MVP project, customer credit ratings changes, including EQT's, and
defaults, acquisitions and financings and any further changes in
EQM’s credit ratings; the ability of EQM's contracts to survive a
customer bankruptcy or restructuring; expected transaction expenses
related to the proposed merger with EQM and related transactions;
the possible diversion of management time on issues relating to the
proposed merger with EQM; the impact and outcome of pending and
future litigation relating to the proposed merger with EQM; the
timing and amount of future issuances or repurchases of securities;
effects of conversion of EQM securities in connection with ETRN’s
proposed acquisition of EQM or otherwise; effects of seasonality;
expected cash flows and MVCs, including those associated with the
EQT Global GGA and any definitive agreement or agreements between
EQT and EQM related to the Water Services Letter Agreement, and the
potential impact thereon of the timing and cost of the MVP project;
capital commitments; projected capital contributions and capital
and operating expenditures, including the amount and timing of
reimbursable capital expenditures, capital budget and sources of
funds for capital expenditures; dividend and distribution amounts
and timing and rates; the effect and outcome of pending and future
litigation and regulatory proceedings; changes in commodity prices
and the effect of commodity prices on ETRN's and EQM's business;
liquidity and financing requirements, including sources and
availability; interest rates; EQM’s and EQM’s subsidiaries’
respective abilities to service debt under, and comply with the
covenants contained in, their respective credit agreements;
expectations regarding production volumes in EQM's areas of
operations; ETRN’s and EQM’s abilities to achieve the anticipated
benefits associated with the execution of the EQT Global GGA, the
Water Services Letter Agreement and the merger agreement entered
into between EQM and ETRN and related agreements; the impact on
ETRN and its subsidiaries of the coronavirus 2019 (COVID-19)
pandemic, including, among other things, effects on demand for
natural gas and EQM’s services, commodity prices and access to
capital; the effects of government regulation; and tax status and
position. These forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from projected results.
Accordingly, investors should not place undue reliance on
forward-looking statements as a prediction of actual results. ETRN
and EQM have based these forward-looking statements on current
expectations and assumptions about future events. While ETRN and
EQM consider these expectations and assumptions to be reasonable,
they are inherently subject to significant business, economic,
competitive, regulatory and other risks and uncertainties, many of
which are difficult to predict and beyond ETRN’s and/or EQM’s
control. The risks and uncertainties that may affect the
operations, performance and results of ETRN’s and EQM’s business
and forward-looking statements include, but are not limited to,
those set forth under (i) Item 1A, "Risk Factors" in ETRN's Annual
Report on Form 10-K for the year ended December 31, 2019 filed with
the Securities and Exchange Commission (the SEC), as updated by the
risk factor disclosed under Item 8.01 of ETRN’s Current Report on
Form 8-K filed with the SEC on April 29, 2020 and as may be updated
by Part II, Item 1A, "Risk Factors," of ETRN’s subsequent Quarterly
Reports on Form 10-Q filed with the SEC, and (ii) Item 1A, "Risk
Factors" in EQM's Annual Report on Form 10-K for the year ended
December 31, 2019 filed with the SEC, as updated by the risk factor
disclosed under Item 8.01 of EQM’s Current Report on Form 8-K filed
with the SEC on April 29, 2020 and as may be updated by Part II,
Item 1A, "Risk Factors," of EQM’s subsequent Quarterly Reports on
Form 10-Q filed with the SEC. Any forward-looking statement speaks
only as of the date on which such statement is made, and neither
ETRN nor EQM intends to correct or update any forward-looking
statement, unless required by securities laws, whether as a result
of new information, future events or otherwise.
All forward-looking statements speak only as of the date they
are made and are based on information available at that time. ETRN
and EQM assume no obligation to update forward-looking statements
to reflect circumstances or events that occur after the date the
forward-looking statements were made or to reflect the occurrence
of unanticipated events except as required by federal securities
laws. As forward-looking statements involve significant risks and
uncertainties, caution should be exercised against placing undue
reliance on such statements.
No Offer or Solicitation
This communication is not intended to and does not constitute an
offer to sell or the solicitation of an offer to subscribe for or
buy or an invitation to purchase or subscribe for any securities or
the solicitation of any vote in any jurisdiction pursuant to the
proposed transactions or otherwise, nor shall there be any sale,
issuance or transfer of securities in any jurisdiction in
contravention of applicable law. No offer of securities shall be
made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act. Subject to certain exceptions to
be approved by the relevant regulators or certain facts to be
ascertained, the public offer will not be made directly or
indirectly, in or into any jurisdiction where to do so would
constitute a violation of the laws of such jurisdiction, or by use
of the mails or by any means or instrumentality (including without
limitation, facsimile transmission, telephone and the internet) of
interstate or foreign commerce, or any facility of a national
securities exchange, of any such jurisdiction.
Additional Information and Where to Find It
In connection with their proposed transactions, ETRN and EQM
filed a registration statement on Form S-4, containing a joint
proxy statement/prospectus (the Form S-4) with the SEC. This
communication is not a substitute for the registration statement,
definitive proxy statement/prospectus or any other documents that
ETRN or EQM may file with the SEC or send to the shareholders of
ETRN or the unitholders of EQM in connection with the proposed
transactions. SHAREHOLDERS OF ETRN AND UNITHOLDERS OF EQM ARE URGED
TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE
FORM S-4 AND THE DEFINITIVE PROXY STATEMENT/PROSPECTUS INCLUDED
THEREIN, AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC,
BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTIONS. When available, investors and security holders will
be able to obtain copies of these documents, including the proxy
statement/prospectus, and any other documents that may be filed
with the SEC with respect to the proposed transactions free of
charge at the SEC’s website, http://www.sec.gov or as described in
the following paragraph.
The documents filed with the SEC by ETRN may be obtained free of
charge at its website (www.equitransmidstream.com) or by requesting
them by mail at Equitrans Midstream Corporation, 2200 Energy Drive,
Canonsburg, PA 15317, Attention: Corporate Secretary, or by
telephone at (724) 271-7600. The documents filed with the SEC by
EQM may be obtained free of charge at its website
(www.eqm-midstreampartners.com) or by requesting them by mail at
EQM Midstream Partners, LP, 2200 Energy Drive, Canonsburg, PA
15317, Attention: Corporate Secretary, or by telephone at (724)
271-7600.
Participants in the Solicitation
ETRN, EQM, EQM’s general partner and their respective directors
and executive officers may be deemed to be participants in the
solicitation of proxies in connection with the proposed
transactions. Information regarding the directors and executive
officers of ETRN is contained in ETRN’s Form 10-K for the year
ended December 31, 2019 and definitive proxy statement filed with
the SEC on April 3, 2020. Information regarding the directors and
executive officers of EQM’s general partner is contained in EQM’s
Form 10-K for the year ended December 31, 2019. Additional
information regarding the interests of participants in the
solicitation of proxies in connection with the proposed
transactions is included in the proxy statement/prospectus.
EQUITRANS MIDSTREAM
CORPORATION
Statements of Consolidated
Comprehensive Income (Unaudited)
Three Months Ended March
31,
2020
2019
(Thousands, except per share
amounts)
Operating revenues(1)
$
453,113
$
389,782
Operating expenses:
Operating and maintenance
38,422
27,883
Selling, general and administrative
29,739
32,178
Separation and other transaction costs
11,360
8,782
Depreciation
61,348
50,511
Amortization of intangible assets
14,581
10,387
Impairments of long-lived assets
55,581
—
Total operating expenses
211,031
129,741
Operating income
242,082
260,041
Equity income
54,072
31,063
Other income
4,163
1,861
Loss on early extinguishment of debt
24,864
—
Net interest expense
66,754
60,949
Income before income taxes
208,699
232,016
Income tax expense
19,139
32,450
Net income
189,560
199,566
Net income attributable to noncontrolling
interests
119,828
143,267
Net income attributable to ETRN
$
69,732
$
56,299
Earnings per share of common stock
attributable to ETRN - basic
$
0.28
$
0.22
Earnings per share of common stock
attributable to ETRN - diluted
$
0.28
$
0.22
Weighted average common shares outstanding
- basic
248,591
254,776
Weighted average common shares outstanding
- diluted
248,591
254,827
(1)
Operating revenues included related party
revenues from EQT Corporation of $303.8 million and $284.5 million
for the three months ended March 31, 2020 and 2019,
respectively.
EQM MIDSTREAM PARTNERS, LP AND
SUBSIDIARIES
Statements of Consolidated
Operations (Unaudited)
Three Months Ended March
31,
2020
2019
(Thousands, except per unit
amounts)
Operating revenues(1)
$
453,113
$
389,782
Operating expenses:
Operating and maintenance
38,422
27,883
Selling, general and administrative
27,897
32,920
Separation and other transaction costs
4,104
3,513
Depreciation
61,114
47,065
Amortization of intangibles assets
14,581
10,387
Impairments of long-lived assets
55,581
—
Total operating expenses
201,699
121,768
Operating income
251,414
268,014
Equity income
54,072
31,063
Other income
4,330
2,210
Net interest expense
54,531
49,356
Net income
255,285
251,931
Net income attributable to noncontrolling
interests
3,607
—
Net income attributable to EQM
$
251,678
$
251,931
Calculation of limited partner common unit
interest in net income:
Net income attributable to EQM
$
251,678
$
251,931
Less: Series A Preferred Units interest in
net income
(25,501
)
—
Limited partner interest in net income
$
226,177
$
251,931
Net income per limited partner common unit
– basic
$
1.13
$
1.63
Net income per limited partner common unit
– diluted
$
1.08
$
1.56
Weighted average limited partner common
units outstanding – basic
200,495
154,259
Weighted average limited partner common
units outstanding – diluted
232,100
161,259
(1)
Operating revenues included related party
revenues from EQT Corporation of $303.8 million and $284.5 million
for the three months ended March 31, 2020 and 2019,
respectively.
EQM MIDSTREAM PARTNERS, LP AND
SUBSIDIARIES
GATHERING RESULTS OF
OPERATIONS
Three Months Ended March
31,
2020
2019
FINANCIAL DATA
(Thousands, except per day
amounts)
Firm reservation fee revenues(1)
$
152,079
$
128,959
Volumetric-based fee revenues
157,968
132,922
Total operating revenues
310,047
261,881
Operating expenses:
Operating and maintenance
18,878
15,253
Selling, general and administrative
21,235
22,534
Separation and other transaction costs
4,104
3,513
Depreciation
40,440
28,116
Amortization of intangible assets
14,581
10,387
Impairments of long-lived assets
55,581
—
Total operating expenses
154,819
79,803
Operating income
$
155,228
$
182,078
OPERATIONAL DATA
Gathering volumes (BBtu per day):
Firm capacity reservation(1)
3,282
2,572
Volumetric-based services
5,014
4,194
Total gathered volumes
8,296
6,766
Capital expenditures(2)
$
111,454
$
207,717
(1)
Includes revenues and volumes, as
applicable, from contracts with MVCs.
(2)
Includes approximately $12.5 million of
capital expenditures related to noncontrolling interests in Eureka
for the three months ended March 31, 2020.
EQM MIDSTREAM PARTNERS, LP AND
SUBSIDIARIES
TRANSMISSION RESULTS OF
OPERATIONS
Three Months Ended March
31,
2020
2019
FINANCIAL DATA
(Thousands, except per day
amounts)
Firm reservation fee revenues
$
99,597
$
99,224
Volumetric-based fee revenues
7,018
10,635
Total operating revenues
106,615
109,859
Operating expenses:
Operating and maintenance
9,441
4,084
Selling, general and administrative
5,182
8,492
Depreciation
13,558
12,533
Total operating expenses
28,181
25,109
Operating income
$
78,434
$
84,750
Equity income
$
54,072
$
31,063
OPERATIONAL DATA
Transmission pipeline throughput (BBtu per
day):
Firm capacity reservation
3,000
2,959
Volumetric-based services
15
105
Total transmission pipeline throughput
3,015
3,064
Average contracted firm transmission
reservation commitments
(BBtu per day)
4,453
4,442
Capital expenditures(1)
$
10,798
$
18,762
(1)
Transmission capital expenditures do not
include capital contributions made to the MVP Joint Venture for the
MVP and MVP Southgate projects of approximately $45.2 million and
$144.8 million for the three months ended March 31, 2020 and 2019,
respectively.
EQM MIDSTREAM PARTNERS, LP AND
SUBSIDIARIES
WATER RESULTS OF
OPERATIONS
Three Months Ended March
31,
2020
2019
FINANCIAL DATA
(Thousands)
Firm reservation fee revenues(1)
$
12,776
$
2,884
Volumetric based fee revenues:
23,675
15,158
Water services revenues
36,451
18,042
Operating expenses:
Operating and maintenance
10,103
8,546
Selling, general and administrative
1,480
1,894
Depreciation
7,116
6,416
Total operating expenses
18,699
16,856
Operating income
$
17,752
$
1,186
OPERATIONAL DATA
Water volumes (MMgal)
Firm capacity reservation(1)
210
90
Volumetric based services
383
280
Total water volumes
593
370
Capital expenditures
$
3,476
$
9,175
(1)
Includes revenues and volumes, as
applicable, from contracts with MVCs.
EQM MIDSTREAM PARTNERS, LP AND
SUBSIDIARIES
CAPITAL EXPENDITURE
SUMMARY
Three Months Ended March
31,
2020
2019
(Thousands)
Expansion capital
expenditures(1)(2)(3)
$
115,551
$
176,509
Maintenance capital expenditures(2)
10,177
9,428
Total capital expenditures
$
125,728
$
185,937
(1)
Capital expenditures do not include
capital contributions made to the MVP Joint Venture for the MVP and
MVP Southgate projects of approximately $45.2 million and $144.8
million for the three months ended March 31, 2020 and 2019,
respectively.
(2)
Includes approximately $11.3 million of
expansion capital expenditures and $1.2 million of maintenance
capital expenditures related to the noncontrolling interest in
Eureka Midstream for the three months ended March 31, 2020.
(3)
Expansion capital expenditures for the
three months ended March 31, 2019 do not include approximately
$49.7 million of non-operating assets acquired from Equitrans
Midstream in the Shared Assets Transaction.
Source: Equitrans Midstream Corporation
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200514005257/en/
Analyst inquiries: Nate Tetlow – Vice President,
Corporate Development and Investor Relations 412-553-5834
ntetlow@equitransmidstream.com
Media inquiries: Natalie Cox – Communications and
Corporate Affairs 412-395-3941 ncox@equitransmidstream.com
EQM Midstream Partners (NYSE:EQM)
Historical Stock Chart
From Jun 2024 to Jul 2024
EQM Midstream Partners (NYSE:EQM)
Historical Stock Chart
From Jul 2023 to Jul 2024