- Generated first quarter net income of $4.3 million and Adjusted
EBITDA1 of $187.5 million
- Kinetik is tracking at the higher-end of its 2023 Adjusted
EBITDA1 Guidance range of $800 million to $860 million
- 2023 Capital Expenditures trending to the upper-end of the
Company’s Guidance range of $490 million to $540 million
- Completed transactions with a key customer to acquire
additional midstream assets and accelerate drilling activity
- April gas processed volumes averaged 1.52 Bcf/d, representing a
new Company record and an approximate 21% increase over equivalent
fourth quarter 2022 volumes
- Active hedging program has materially reduced Kinetik’s
unhedged commodity-linked Gross Profit. Over 94% of Kinetik’s 2023
Gross Profit for the remaining three quarters is derived from
fixed-fee contracts and hedges
Kinetik Holdings Inc. (NYSE: KNTK) (“Kinetik” or the
“Company”) today reported financial results for the quarter
ended March 31, 2023.
First Quarter 2023 Results and
Commentary
For the three months ended March 31, 2023, Kinetik processed
natural gas volumes of 1.35 Bcf/d and reported net income including
noncontrolling interest of $4.3 million. Kinetik generated Adjusted
EBITDA1 of $187.5 million, Distributable Cash Flow (“DCF”)1
of $126.7 million, and Free Cash Flow (“FCF”)1 of $25.8
million for the three months ended March 31, 2023. The results were
primarily driven by increased volumes across both the Midstream
Logistics and Pipeline Transportation segments.
“2023, the first full year post-merger, is off to a very
promising start,” said Jamie Welch, Kinetik’s Chief Executive
Officer and President. “We reported first quarter 2023 net income
and Adjusted EBITDA1 in line with our internal expectations.
Beginning in March, we saw accelerating development across our
system and based on current producer forecasts, we expect this
volume strength and activity to continue. We exceeded our 2023 exit
rate guidance of 1.5 Bcf/d of processed natural gas volume in April
and as a result now expect to exit 2023 well above $900 million of
annualized Adjusted EBITDA1,2. Looking forward into 2024, we
anticipate continued, meaningful Adjusted EBITDA1 growth from our
2023 capital projects placed into service in late 2023 and early
2024.”
“Regarding our new system expansion into New Mexico,
construction and permitting are progressing well. We anticipate the
pipeline to be complete and operational in January 2024. We are
currently in commercial discussions with various New Mexico
producers on a number of exciting new opportunities that would
expand our business and enhance our position as a leading midstream
service provider in the Delaware Basin. We expect to provide an
update following the successful conclusion of these producer
discussions in the next few quarters.”
In late March, Kinetik acquired a midstream infrastructure
system in Reeves County, Texas from one of its largest customers
and entered into a new, 20-year fixed-fee midstream services
agreement. The purchase price for the assets was $65 million,
representing less than a 4x acquisition EBITDA multiple. The
Company also executed an incentive agreement with the customer,
accelerating near-term drilling activity on dedicated acreage for
gas processing and water gathering services beginning at the end of
this year. The Company paid to the customer $60 million of
additional consideration and such incentive revenue uplift in 2024
represents less than a 4x 2024 EBITDA set-up multiple.
Kinetik remains highly focused on its capital allocation
priorities and maximizing shareholder value. In the first quarter,
the Company opportunistically repurchased $2.4 million of shares of
Class A common stock under the previously announced $100 million
Repurchase Program. The approximately 81,900 repurchased shares
will partially offset issuances pursuant to the Company’s Dividend
and Distribution Reinvestment Plan (“DRIP”).
Financial
- Achieved quarterly net income of $4.3 million and Adjusted
EBITDA1 of $187.5 million.
- Based on the Company’s customer activity, hedging program,
recent acquisition, and outlook for the business, Kinetik is
tracking at the higher-end of its 2023 Adjusted EBITDA1 Guidance
range of $800 million to $860 million, despite the delayed
in-service of the Permian Highway Pipeline (“PHP”)
Expansion.
- Declared a dividend of $0.75 per share on April 19, 2023 for
the quarter ended March 31, 2023, or $3.00 per share on an
annualized basis. 117 million shares have elected to reinvest the
first quarter dividend into newly issued shares of Class A common
stock. As a result, $19.5 million of first quarter dividends will
be paid in cash.3
- Exited the first quarter with a Net Debt to Adjusted EBITDA1,4
Ratio of 4.3x and a Leverage Ratio1,5 per its Credit Agreement of
4.0x.
- Fixed Kinetik’s floating SOFR rate for $2.25 billion of its
bank facility debt from May 2023 through May 2025, reducing
Kinetik’s floating rate exposure to approximately 8% of total
current debt outstanding.
- Reduced remaining 2023 unhedged commodity-linked gross profit
from approximately 10% to 6%.
Selected Key Metrics:
Three Months Ended March
31,
2023
(In thousands, except shares
and ratios)
Net income including noncontrolling
interest6
$
4,299
Adjusted EBITDA1
$
187,487
Distributable Cash Flow1
$
126,705
Dividend Coverage Ratio1,7
1.2x
Free Cash Flow1
$
25,826
Leverage Ratio1,5
4.0x
Net Debt to Adjusted EBITDA Ratio1,4
4.3x
Common stock issued and outstanding8
143,143,449
March 31, 2023
December 31, 2022
(In thousands)
Net Debt1,9
$
3,535,016
$
3,388,606
Strategic
- Acquired midstream infrastructure assets in southern Reeves
County, Texas for $65 million. In connection with the acquisition,
Kinetik entered into an incentive agreement to accelerate near-term
development on the customer’s dedicated acreage, benefiting
Kinetik’s gas and produced water service fee revenues starting in
late 2023. Incentive targets are evaluated against ongoing regular
performance criteria and the additional $60 million of
consideration paid to the customer for the incentive agreement is
subject to refund with consequential monetary penalties if not
satisfied.
- Analyzing portfolio monetization opportunities, particularly
the Company’s stake in Gulf Coast Express pipeline, as a means to
accelerate achievement of its widely communicated capital
allocation targets.
Operational
- Completed and placed in-service the Diamond Cryo processing
expansion, adding 120 MMcf/d of processing capacity.
- Construction of Delaware Link, Kinetik’s 30-inch residue gas
pipeline from its processing complexes to Waha with an initial
throughput capacity of 1 Bcf/d, is on budget and on schedule. The
pipeline is expected in-service in October 2023.
- Kinetik’s New Mexico system expansion into Lea County is on
budget and on schedule and should be in-service in January
2024.
- Progress continues on the PHP expansion of 550 MMcf/d of
incremental capacity, increasing natural gas deliveries from the
Permian to the U.S. Gulf Coast markets. Supply chain constraints
for certain components and materials are causing a delay, pushing
the expected in-service date to December 2023.
- In 2022, Kinetik reduced Scope 1 and Scope 2 greenhouse gas and
Scope 1 and Scope 2 methane emissions intensities by 8% and 13%
year-over-year, respectively. Consequently, Kinetik achieved its
2022 Sustainability-Linked Financing Framework performance targets,
which will result in a modest interest expense reduction beginning
in July 2023.
Upcoming Tour Dates
Kinetik plans to participate at the following upcoming
conferences and events:
- Citi Energy and Climate Conference in Boston on May 10th
- Energy Infrastructure Conference in Palm Beach on May 23rd -
24th
- Bank of America Energy Credit Conference in New York City on
June 7th - 8th
- JP Morgan Energy, Power and Renewables Conference in New York
City on June 21st - 23rd
Investor Presentation
An updated investor presentation will be available under Events
and Presentations in the Investors section of the Company’s website
at www.kinetik.com.
Conference Call and
Webcast
Kinetik will host its first quarter 2023 results conference call
on Thursday, May 4, 2023 at 8:00 am Central Daylight Time (9:00 am
Eastern Daylight Time) to discuss first quarter results. To access
a live webcast of the conference call, please visit the Investor
Relations section of Kinetik’s website at www.ir.kinetik.com. A
replay of the conference call also will be available on the website
following the call.
About Kinetik Holdings
Inc.
Kinetik is a fully integrated, pure-play, Permian-to-Gulf Coast
midstream C-corporation operating in the Delaware Basin. Kinetik is
headquartered in Midland, Texas and has a significant presence in
Houston, Texas. Kinetik provides comprehensive gathering,
transportation, compression, processing and treating services for
companies that produce natural gas, natural gas liquids, crude oil
and water. Kinetik posts announcements, operational updates,
investor information and press releases on its website,
www.kinetik.com.
Forward-looking
statements
This news release includes certain statements that may
constitute “forward-looking statements” for purposes of the federal
securities laws. Forward-looking statements include, but are not
limited to, statements that refer to projections, forecasts or
other characterizations of future events or circumstances,
including any underlying assumptions. The words “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intends,”
“may,” “might,” “plan,” “seeks,” “possible,” “potential,”
“predict,” “project,” “prospects,” “guidance,” “outlook,” “should,”
“would,” “will,” and similar expressions may identify
forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking. These statements
include, but are not limited to, statements about the Company’s
future plans, expectations, and objectives for the Company’s
operations, including statements about strategy, synergies,
expansion projects and future operations, and financial guidance;
the Company’s share repurchase program and the projected timing,
purchase price and number of shares purchased under such program,
if at all; projected dividend amounts and the timing thereof; the
Company’s leverage and financial profile and its ability to improve
its credit ratings. While forward-looking statements are based on
assumptions and analyses made by us that we believe to be
reasonable under the circumstances, whether actual results and
developments will meet our expectations and predictions depend on a
number of risks and uncertainties which could cause our actual
results, performance, and financial condition to differ materially
from our expectations. See Part II, Item 1A. Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2022.
Any forward-looking statement made by us in this news release
speaks only as of the date on which it is made. Factors or events
that could cause our actual results to differ may emerge from time
to time, and it is not possible for us to predict all of them. We
undertake no obligation to publicly update any forward-looking
statement whether as a result of new information, future
development, or otherwise, except as may be required by law.
Additional information
Additional information follows, including a reconciliation of
Adjusted EBITDA, Distributable Cash Flow, Free Cash Flow, and Net
Debt (non-GAAP financial measures) to the GAAP measures.
Non-GAAP financial
measures
Kinetik’s financial information includes information prepared in
conformity with generally accepted accounting principles (GAAP) as
well as non-GAAP financial information. It is management’s intent
to provide non-GAAP financial information to enhance understanding
of our consolidated financial information as prepared in according
with GAAP. Adjusted EBITDA, Distributable Cash Flow, Free Cash
Flow, Dividend Coverage Ratio, Net Debt and Leverage Ratio are
non-GAAP measures. This non-GAAP information should be considered
by the reader in addition to, but not instead of, the financial
statements prepared in accordance with GAAP and reconciliations
from these results should be carefully evaluated. See
“Reconciliation of GAAP to Non-GAAP Measures” elsewhere in this
news release.
1. A non-GAAP financial measure. See “Non-GAAP Financial
Measures” and “Reconciliation of GAAP to Non-GAAP Measures” for
further details.
2. A reconciliation of expected full year or annualized December
2023 Adjusted EBITDA to net income (loss), the closest GAAP
financial measure, cannot be provided without unreasonable efforts
due to the inherent difficulty in quantifying certain amounts,
including share-based compensation expense, which is affected by
factors including future personnel needs and the future prices of
our Class A Common Stock, which may be significant.
3. Dividends reinvested and dividends paid in cash as of May 3,
2023. Final numbers are subject to change.
4. Net Debt to Adjusted EBITDA Ratio is defined as Net Debt
divided by last twelve months Adjusted EBITDA.
5. Leverage Ratio is total debt less cash and cash equivalents
divided by last twelve months Adjusted EBITDA, calculated in the
Company’s credit agreement. The calculation includes Qualified
Project and Acquisition EBITDA Adjustments that pertain to the
funding of the Permian Highway Pipeline expansion project, first
quarter 2023 midstream infrastructure asset acquisition, Brandywine
NGL acquisition, and other qualified growth capital projects at the
Midstream Logistics segment.
6. Net income including noncontrolling interest for the three
months ended March 31, 2022 was $21.4 million.
7. Dividend Coverage Ratio is Distributable Cash Flow divided by
total declared dividends.
8. Issued and outstanding shares of 143,143,449 is the sum of
49,054,411 shares of Class A common stock and 94,089,038 shares of
Class C common stock.
9. Net Debt is defined as total long-term debt, excluding
deferred financing costs, less cash and cash equivalents.
Notes Regarding Presentation of Financial
Information
The following addresses the results of our operations for the
three months ended March 31, 2023, as compared to our results of
operations for the three months ended March 31, 2022. As the
business combination between BCP Raptor Holdco, LP, Kinetik’s
predecessor for accounting purposes (“BCP”) and Altus
Midstream LP (“Altus”) (the “Transaction”) was
determined to be a reverse merger, BCP was considered the
accounting acquirer and Altus was considered the legal acquirer.
Therefore, BCP’s net assets, carrying at historical value, were
presented as the predecessor to the Company’s historical financial
statements and the comparable period presented herein reflects the
results of operations of BCP for the three months ended March 31,
2022 and Altus’ results of operations from February 22, 2022, the
closing date of the Transaction, through March 31, 2022. Kinetik’s
financial results on and after February 22, 2022 reflect the
results of the combined company.
Unless otherwise noted or the context requires otherwise,
references herein to Kinetik Holdings Inc. or “the Company” with
respect to time periods prior to February 22, 2022 include BCP and
its consolidated subsidiaries and do not include Altus and its
consolidated subsidiaries, while references herein to Kinetik
Holdings Inc. with respect to time periods from and after February
22, 2022 include Altus and its consolidated subsidiaries.
The Company completed a two-for-one Stock Split on June 8, 2022.
All corresponding per-share and share amounts for periods prior to
June 8, 2022 have been retroactively restated to reflect the
two-for-one Stock Split.
KINETIK HOLDINGS INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2023
2022(1)
(In thousands, except per
share data)
Operating revenues:
Service revenue
$
103,425
$
80,445
Product revenue
173,824
174,928
Other revenue
3,791
1,876
Total operating revenues
281,040
257,249
Operating costs and expenses:
Costs of sales (exclusive of depreciation
and amortization shown separately below)
115,877
120,275
Operating expenses
35,973
29,871
Ad valorem taxes
5,458
4,153
General and administrative expenses
27,511
22,752
Depreciation and amortization expenses
68,854
61,023
Loss on disposal of assets
102
110
Total operating costs and expenses
253,775
238,184
Operating income
27,265
19,065
Other income (expense):
Interest and other income
294
250
Gain on redemption of mandatorily
redeemable Preferred Units
—
4,493
Loss on embedded derivative
—
(2,886
)
Interest expense
(69,308
)
(26,774
)
Equity in earnings of unconsolidated
affiliates
46,464
27,917
Total other (expense) income, net
(22,550
)
3,000
Income before income taxes
4,715
22,065
Income tax expense
416
676
Net income including noncontrolling
interest
4,299
21,389
Net income attributable to Preferred Unit
limited partners
—
4,993
Net income attributable to common
shareholders
4,299
16,396
Net income attributable to Common Unit
limited partners
2,863
12,531
Net income attributable to Class A Common
Stock Shareholders
$
1,436
$
3,865
Net (loss) income attributable to Class A
Common Shareholders per share
Basic
$
(0.06
)
$
0.10
Diluted
$
(0.06
)
$
0.10
Weighted-average shares(2)
Basic
47,392
37,392
Diluted
47,605
37,426
(1) The results of the legacy Altus business are not included in
the Company’s consolidated financials prior to February 22, 2022.
Refer to Note 1 – Description of the Organization and Summary of
Significant accounting Policies in the Notes to the Condensed
Consolidated Financial Statements of the Company’s Form 10-Q filed
on May 4, 2023 for further information.
(2) Share amounts have been retroactively restated to reflect
the Company’s two-for-one stock split, which was effected on June
8, 2022. Refer to Note 10 – Equity and Warrants in the Notes to the
Condensed Consolidated Financial Statements of the Company’s Form
10-Q filed on May 4, 2023 for further information.
KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
Three Months Ended
March 31,
2023
2022(1)
(In thousands)
Net Income Including Noncontrolling
Interests to Adjusted EBITDA
Net income including noncontrolling
interests
$
4,299
$
21,389
Add back:
Interest expense
69,308
26,645
Income tax expense
416
676
Depreciation and amortization
68,854
61,023
Amortization of contract costs
1,655
448
Proportionate EMI EBITDA
71,867
40,741
Share-based compensation
17,540
6,132
Loss on disposal of assets
102
110
Loss on debt extinguishment
—
129
Unrealized (gain) loss on commodity or
embedded derivatives
(4,987
)
2,886
Integration Costs
925
6,151
Transaction Costs
268
5,676
Other one-time cost or amortization
3,748
1,195
Deduct:
Warrant valuation adjustment
44
—
Gain on redemption of mandatorily
redeemable Preferred Units
—
4,493
Equity income from EMI's
46,464
27,917
Adjusted EBITDA(2) (non-GAAP)
$
187,487
$
140,791
Distributable Cash Flow (3)
Adjusted EBITDA (non-GAAP)
$
187,487
$
140,791
Proportionate EMI EBITDA
(71,867
)
(40,741
)
Cash distributions received from EMI's
(operating)
67,764
48,073
Interest expense
(69,308
)
(26,645
)
Unrealized loss on interest rate
derivatives
17,189
—
Maintenance capital expenditures
(4,560
)
(1,583
)
Distributable cash flow
(non-GAAP)
$
126,705
$
119,895
Free Cash Flow (4)
Distributable cash flow (non-GAAP)
$
126,705
$
119,895
Cash interest adjustment
15,374
844
Growth capital expenditures
(64,057
)
(31,210
)
Investments in EMI's
(58,658
)
—
Cash distributions received from EMI's
(investing)
5,793
—
Contributions in aid of construction
669
4,806
Free cash flow (non-GAAP)
$
25,826
$
94,335
KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (CONTINUED)
Three Months Ended
March 31,
2023
2022(1)
(In thousands)
Reconciliation of net cash provided by
operating activities to Adjusted EBITDA
Net cash provided by operating
activities
$
119,591
$
98,393
Net changes in operating assets and
liabilities
8,743
937
Interest expense
69,308
26,645
Amortization of deferred financing
costs
(1,521
)
(3,389
)
Current income tax expense
53
—
Cash distributions received from EMI's
(67,764
)
(48,073
)
Proportionate EMI EBITDA
71,867
40,741
Derivative settlement and fair value
adjustments
(12,744
)
9,629
Unrealized (gain) loss on commodity or
embedded derivatives
(4,987
)
2,886
Integration Costs
925
6,151
Transaction Costs
268
5,676
Other one-time cost or amortization
3,748
1,195
Adjusted EBITDA(2) (non-GAAP)
$
187,487
$
140,791
Distributable Cash Flow(3)
Adjusted EBITDA (non-GAAP)
$
187,487
$
140,791
Proportionate EMI EBITDA
(71,867
)
(40,741
)
Cash distributions received from EMI's
(operating)
67,764
48,073
Interest expense
(69,308
)
(26,645
)
Unrealized loss on interest rate
derivatives
17,189
—
Maintenance capital expenditures
(4,560
)
(1,583
)
Distributable cash flow
(non-GAAP)
$
126,705
$
119,895
Free Cash Flow(4)
Distributable cash flow (non-GAAP)
$
126,705
$
119,895
Cash interest adjustment
15,374
844
Growth capital expenditures
(64,057
)
(31,210
)
Investments in EMI's
(58,658
)
—
Cash distributions received from EMI's
(investing)
5,793
—
Contributions in aid of construction
669
4,806
Free cash flow (non-GAAP)
$
25,826
$
94,335
KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (CONTINUED)
March 31,
December 31,
2023
2022
(In thousands)
Net Debt(5)
Current portion of long-term debt, net
$
—
$
—
Long-term debt, net
3,511,648
3,368,510
Plus: Deferred financing costs
25,352
26,490
Total long-term debt
3,537,000
3,395,000
Less: Cash and cash equivalents
1,984
6,394
Net debt (non-GAAP)
$
3,535,016
$
3,388,606
(1) The results of the legacy Altus business are not included in
the Company’s consolidated financials prior to February 22,
2022.
(2) Adjusted EBITDA is defined as net income including
noncontrolling interests adjusted for interest, taxes, depreciation
and amortization, impairment charges, asset write-offs, the
proportionate EBITDA from our equity method investments, equity in
earnings from investments recorded using the equity method,
share-based compensation expense, extraordinary losses and unusual
or non-recurring charges. Adjusted EBITDA provides a basis for
comparison of our business operations between current, past and
future periods by excluding items that we do not believe are
indicative of our core operating performance. Adjusted EBITDA
should not be considered as an alternative to the GAAP measure of
net income including noncontrolling interests or any other measure
of financial performance presented in accordance with GAAP.
(3) Distributable Cash Flow is defined as Adjusted EBITDA,
adjusted for the proportionate EBITDA from our equity method
investments, operating cash distributions received from our equity
method investments, interest expense, net of amounts capitalized,
distributions to preferred unitholders and maintenance capital
expenditures. Distributable Cash Flow should not be considered as
an alternative to the GAAP measure of net income including
noncontrolling interests or any other measure of financial
performance presented in accordance with GAAP. We believe that
Distributable Cash Flow is a useful measure to compare cash
generation performance from period to period and to compare the
cash generation performance for specific periods to the amount of
cash dividends we make.
(4) Free Cash Flow is defined as Distributable Cash Flow
adjusted for growth capital expenditures, investments in EMI’s,
investing cash distributions received from our equity method
investments, cash interest and contributions in aid of
construction. Free Cash flow should not be considered as an
alternative to the GAAP measure of net income including
noncontrolling interests or any other measure of financial
performance presented in accordance with GAAP. We believe that Free
Cash Flow is a useful performance measure to compare cash
generation performance from period to period and to compare the
cash generation performance for specific periods to the amount of
cash dividends that we make.
(5) Net Debt is defined as total long-term debt, excluding
deferred financing costs, less cash and cash equivalents. Net Debt
illustrates our total debt position less cash on hand that could be
utilized to pay down debt at the balance sheet date. Net Debt
should not be considered as an alternative to the GAAP measure of
total long-term debt, or any other measure of financial performance
presented in accordance with GAAP.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230503005934/en/
Kinetik Investors: Maddie Wagner (713) 487-4832 Website:
www.kinetik.com
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