- Generated third quarter net income of $43.1 million and
Adjusted EBITDA1 of $215.3 million
- Achieved quarterly gas processed volumes of 1.49 Bcf/d, up 23%
year-over-year
- Updated the Company’s 2023 Adjusted EBITDA1 Guidance range to
$820 million to $860 million
- 2023 Capital Expenditures expected to be at the top end of the
Company’s Guidance range of $490 million to $540 million
Kinetik Holdings Inc. (NYSE: KNTK) (“Kinetik” or the
“Company”) today reported financial results for the quarter
ended September 30, 2023.
Third Quarter 2023 Results and
Commentary
For the three and nine months ended September 30, 2023, Kinetik
processed natural gas volumes of 1.49 Bcf/d and 1.44 Bcf/d,
respectively, and reported net income including noncontrolling
interest of $43.1 million and $119.1 million, respectively.
Kinetik generated Adjusted EBITDA1 of $215.3 million and $610.8
million for the three and nine months ended September 30, 2023,
respectively, Distributable Cash Flow1 of $148.1 million and $418.8
million for the three and nine months ended September 30, 2023,
respectively, and Free Cash Flow1 of $36.8 million and $(17.0)
million for the three and nine months ended September 30, 2023,
respectively.
“2023 continues to be a seminal year for our Company as we
execute on our capital program that underscores our long-term
strategic vision,” said Jamie Welch, Kinetik’s President &
Chief Executive Officer. “In the third quarter, we achieved
processed gas volumes of 1.49 Bcf/d, representing 23% growth
year-over-year. Adjusted EBITDA1 increased 4% quarter-over-quarter,
despite weather-related challenges in July and August and some
unexpected downstream pipeline outages for multiple days throughout
the quarter.”
“We made significant progress on our 2023 capital program during
the quarter. Construction continued across the state line on our
expansion into Lea County, New Mexico with right-of-way approval
for the route received. The expansion, which is supported by
multi-year agreements with minimum volume commitments, remains
ahead of schedule with expected in-service in the first quarter of
2024. We completed construction of the Delaware Link pipeline in
September and reached commercial in-service on October 1, 2023.
These two projects, coupled with the Permian Highway Pipeline
(“PHP”) expansion nearing completion, enable Kinetik to
offer Delaware Basin producers a highly-competitive, integrated
wellhead-to-Gulf Coast market solution.”
“Looking ahead, we are on track to achieve our 2023 exit rate
guidance of 1.6 Bcf/d of gas processed volumes. We forecast
sequential Adjusted EBITDA1 and volume growth in the fourth quarter
at our Midstream Logistics segment. Within our Pipeline
Transportation segment, the Delaware Link pipeline is in-service,
and we expect the start-up of the PHP expansion in December. As a
result, we have tightened our 2023 Adjusted EBITDA1 Guidance
range.”
“In 2024, we estimate meaningful year-over-year Adjusted EBITDA1
growth combined with a capital expenditures plan of less than $150
million, demonstrating the attractive Free Cash Flow1 potential of
our asset base.”
Financial
a. Achieved quarterly net income of $43.1 million and Adjusted
EBITDA1 of $215.3 million.
b. Declared a dividend of $0.75 per share for the quarter ended
September 30, 2023, or $3.00 per share on an annualized basis. 118
million shares have elected to reinvest the third quarter dividend
into newly issued shares of Class A common stock. As a result,
$23.3 million of third quarter dividends will be paid in cash.2
c. Exited the quarter with a Leverage Ratio1,3 per the Company’s
Revolving Credit Agreement of 4.0x and a Net Debt to Adjusted
EBITDA1,4 Ratio of 4.4x.
d. Generated Free Cash Flow1 of $36.8 million, marking the end
of the Company’s elevated capital intensity of its 2023 growth
Capital Expenditure program.
e. Hedged approximately 25% of its 2024 commodity-linked gross
profit exposure.
Selected Key Metrics:
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2023
(In thousands, except shares
and ratios)
Net income including noncontrolling
interest5
$
43,131
$
119,098
Adjusted EBITDA1
$
215,324
$
610,825
Distributable Cash Flow1
$
148,053
$
418,794
Dividend Coverage Ratio1,6
1.3x
1.2x
Free Cash Flow1
$
36,805
$
(16,986
)
Leverage Ratio1,3
4.0x
Net Debt to Adjusted EBITDA Ratio1,4
4.4x
Common stock issued and outstanding7
148,608,696
September 30, 2023
June 30, 2023
March 31, 2022
(In thousands)
Net Debt1,8
$
3,629,932
$
3,647,763
$
3,535,016
Strategic
a. Kinetik’s Commercial team continued to expand gathering and
processing services with both new and existing customers around the
Company’s system in the Delaware Basin including new opportunities
in both Texas and New Mexico.
b. Continue to evaluate monetizing the Company’s stake in Gulf
Coast Express pipeline.
Growth Projects
a. Completion 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, achieved ahead of schedule.
Commercial in-service started on October 1, 2023.
b. Kinetik’s New Mexico system expansion into Lea County remains
on budget and construction is ahead of schedule with expected
in-service at the beginning of 2024.
c. Construction is nearly complete on the PHP expansion of 550
MMcf/d of incremental capacity, increasing natural gas deliveries
from the Permian to U.S. Gulf Coast markets. The project is
expected to be in-service on December 1, 2023.
Sustainability
a. Kinetik’s ESG rating was upgraded to AA by MSCI.
b. Kinetik was awarded a 2023 New Technology Implementation
Grant by The Texas Commission on Environmental Quality and Texas
Emissions Reduction Plan. The grant supports the implementation of
new technologies that reduce emissions.
Upcoming Tour Dates
Kinetik plans to participate at the following upcoming
conferences and events:
a. Bank of America Global Energy Conference in Houston on
November 14th
b. Bank of America Leveraged Finance Conference in Boca Raton on
November 29th
c. Mizuho Power, Energy & Infrastructure Conference in New
York City on December 5th
d. Wells Fargo Midstream and Utilities Symposium in New York
City on December 6th
e. Goldman Sachs Global Energy Conference in Miami on January
3rd – 5th
f. UBS Global Energy & Utilities Conference in Park City on
January 8th – 10th
g. USCA Midstream Corporate Access Day in Houston on January
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.ir.kinetik.com.
Conference Call and
Webcast
Kinetik will host its third quarter 2023 results conference call
on Thursday, November 9, 2023 at 8:00 am Central Standard Time
(9:00 am Eastern Standard Time) to discuss third quarter results.
To access a live webcast of the conference call, please visit the
Investors 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,
sustainability initiatives, portfolio monetization opportunities,
expansion projects and future operations, and financial guidance;
the Company’s projected dividend amounts and the timing thereof;
and the Company’s leverage and financial profile. 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.
- A non-GAAP financial measure. See “Non-GAAP Financial Measures”
and “Reconciliation of GAAP to Non-GAAP Measures” for further
details.
- Estimated dividends reinvested and dividends paid in cash as of
November 1, 2023. Final numbers are subject to change.
- 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, Delaware
Link project, first quarter 2023 midstream infrastructure asset
acquisition, and other qualified growth capital projects at the
Midstream Logistics segment.
- Net Debt to Adjusted EBITDA Ratio is defined as Net Debt
divided by last twelve months Adjusted EBITDA.
- Net income including noncontrolling interest for the three and
nine months ended September 30, 2022 was $49.4 million and $202.3
million, respectively.
- Dividend Coverage Ratio is Distributable Cash Flow divided by
total declared dividends.
- Issued and outstanding shares of 148,608,696 is the sum of
54,519,658 shares of Class A common stock and 94,089,038 shares of
Class C common stock.
- 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 and nine months ended September 30, 2023, as compared to our
results of operations for the three and nine months ended September
30, 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 and nine months ended
September 30, 2022 and Altus’ results of operations from February
22, 2022, the closing date of the Transaction, through September
30, 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
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022(1)
(In thousands, except per
share data)
Operating revenues:
Service revenue
$
104,349
$
107,597
$
310,325
$
290,122
Product revenue
221,280
213,803
586,534
618,382
Other revenue
4,672
3,776
10,685
9,493
Total operating revenues
330,301
325,176
907,544
917,997
Operating costs and expenses:
Costs of sales (exclusive of depreciation
and amortization shown separately below) (2)
147,756
145,208
374,100
418,197
Operating expenses
42,925
35,845
118,804
100,996
Ad valorem taxes
5,607
5,903
14,954
15,936
General and administrative expenses
22,751
23,468
73,131
72,180
Depreciation and amortization expenses
69,935
65,005
208,271
192,609
Loss on disposal of assets
2,927
3,946
15,166
12,602
Total operating costs and expenses
291,901
279,375
804,426
812,520
Operating income
38,400
45,801
103,118
105,477
Other income (expense):
Interest and other income
289
—
1,625
250
Gain on redemption of mandatorily
redeemable Preferred Units
—
—
—
9,580
Loss on debt extinguishment
—
—
—
(27,975
)
Gain on embedded derivative
—
488
—
89,050
Interest expense
(45,009
)
(40,464
)
(130,443
)
(92,585
)
Equity in earnings of unconsolidated
affiliates
50,754
45,003
146,828
120,706
Total other income, net
6,034
5,027
18,010
99,026
Income before income taxes
44,434
50,828
121,128
204,503
Income tax expense
1,303
1,406
2,030
2,244
Net income including noncontrolling
interest
43,131
49,422
119,098
202,259
Net income attributable to Preferred Unit
limited partners
—
708
—
115,203
Net income attributable to common
shareholders
43,131
48,714
119,098
87,056
Net income attributable to Common Unit
limited partners
27,551
33,778
77,068
61,817
Net income attributable to Class A Common
Stock Shareholders
$
15,580
$
14,936
$
42,030
$
25,239
Net income attributable to Class A Common
Shareholders per share
Basic
$
0.21
$
1.04
$
0.58
$
1.24
Diluted
$
0.21
$
1.04
$
0.57
$
1.24
Weighted-average shares(3)
Basic
53,340
41,816
50,464
40,042
Diluted
53,463
41,855
50,719
40,075
(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 November 9, 2023 for further
information.
(2) Cost of sales (exclusive of
depreciation and amortization) is net of gas service revenues
totaling $38.6 million, $17.1 million, $107.1 million and $51.1
million for the three and nine months ended September 30, 2023 and
2022, respectively, for certain volumes where we act as
principal.
(3) 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 November 9, 2023 for
further information.
KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022(1)
(In thousands)
Net Income Including Noncontrolling
Interests to Adjusted EBITDA
Net income including noncontrolling
interest
$
43,131
$
49,422
$
119,098
$
202,259
Add back:
Interest expense
45,009
40,464
130,443
92,585
Income tax expense
1,303
1,406
2,030
2,244
Depreciation and amortization
69,935
65,005
208,271
192,609
Amortization of contract costs
1,655
448
4,965
1,344
Proportionate EMI EBITDA
78,585
78,357
224,933
190,438
Share-based compensation
12,502
12,661
43,340
30,966
Loss on disposal of assets
2,927
3,946
15,166
12,602
Loss on debt extinguishment
—
—
—
27,975
Unrealized loss on derivatives
8,259
—
616
—
Integration Costs
21
2,338
985
10,012
Transaction Costs
378
62
648
6,412
Other one-time cost or amortization
2,662
3,752
7,545
10,969
Warrant valuation adjustment
4
—
—
—
Deduct:
Interest income
293
—
314
—
Warrant valuation adjustment
—
—
73
—
Gain on redemption of mandatorily
redeemable Preferred Units
—
—
—
9,580
Gain on embedded derivative
—
488
—
89,050
Equity income from EMI's
50,754
45,003
146,828
120,706
Adjusted EBITDA(2) (non-GAAP)
$
215,324
$
212,370
$
610,825
$
561,079
Distributable Cash Flow(3)
Adjusted EBITDA (non-GAAP)
$
215,324
$
212,370
$
610,825
$
561,079
Proportionate EMI EBITDA
(78,585
)
(78,357
)
(224,933
)
(190,438
)
Cash distributions received from EMI's
(operating)
69,661
68,242
205,891
185,786
Interest expense
(45,009
)
(40,464
)
(130,443
)
(92,585
)
Unrealized gain on interest rate
derivatives
(7,835
)
—
(27,481
)
—
Maintenance capital expenditures
(5,503
)
(4,053
)
(15,065
)
(7,492
)
Distributions paid to preferred unit
limited partners
—
—
—
(8,787
)
Distributable cash flow
(non-GAAP)
$
148,053
$
157,738
$
418,794
$
447,563
Free Cash Flow(4)
Distributable cash flow (non-GAAP)
$
148,053
$
157,738
$
418,794
$
447,563
Cash interest adjustment
12,378
16,854
(7,953
)
15,993
Realized gain on interest rate swaps
4,665
—
7,082
—
Growth capital expenditures
(81,250
)
(89,812
)
(245,812
)
(166,318
)
Investments in EMI's
(48,008
)
(53,524
)
(202,729
)
(56,199
)
Cash distributions received from EMI's
(investing)
—
—
5,793
—
Contributions in aid of construction
967
2,752
7,839
14,344
Free cash flow (non-GAAP)
$
36,805
$
34,008
$
(16,986
)
$
255,383
KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (CONTINUED)
Nine Months Ended
September 30,
2023
2022(1)
(In thousands)
Reconciliation of net cash provided by
operating activities to Adjusted EBITDA
Net cash provided by operating
activities
$
405,585
$
453,244
Net changes in operating assets and
liabilities
24,604
(12,810
)
Interest expense
130,443
92,585
Amortization of deferred financing
costs
(4,601
)
(8,053
)
Contingent liabilities remeasurement
—
839
Current income tax expense
355
362
Cash distributions received from EMI's
(205,891
)
(185,786
)
Proportionate EMI EBITDA
224,933
190,438
Derivative fair value adjustment and
settlement
25,917
2,867
Unrealized loss on derivatives
616
—
Interest income
(314
)
—
Integration Costs
985
10,012
Transaction Costs
648
6,412
Other one-time cost or amortization
7,545
10,969
Adjusted EBITDA(2) (non-GAAP)
$
610,825
$
561,079
Distributable Cash Flow(3)
Adjusted EBITDA (non-GAAP)
$
610,825
$
561,079
Proportionate EMI EBITDA
(224,933
)
(190,438
)
Cash distributions received from EMI's
(operating)
205,891
185,786
Interest expense
(130,443
)
(92,585
)
Unrealized gain on interest rate
derivatives
(27,481
)
—
Maintenance capital expenditures
(15,065
)
(7,492
)
Distributions paid to preferred unit
limited partners
—
(8,787
)
Distributable cash flow
(non-GAAP)
$
418,794
$
447,563
Free Cash Flow(4)
Distributable cash flow (non-GAAP)
$
418,794
$
447,563
Cash interest adjustment
(7,953
)
15,993
Realized gain on interest rate swaps
7,082
—
Growth capital expenditures
(245,812
)
(166,318
)
Investments in EMI's
(202,729
)
(56,199
)
Cash distributions received from EMI's
(investing)
5,793
—
Contributions in aid of construction
7,839
14,344
Free cash flow (non-GAAP)
$
(16,986
)
$
255,383
KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (CONTINUED)
September 30,
June 30,
March 31,
2023
2023
2023
(In thousands)
Net Debt(5)
Long-term debt, net
$
3,606,962
$
3,625,799
$
3,511,648
Plus: Debt issuance costs, net
23,038
24,201
25,352
Total long-term debt
3,630,000
3,650,000
3,537,000
Less: Cash and cash equivalents
68
2,237
1,984
Net debt (non-GAAP)
$
3,629,932
$
3,647,763
$
3,535,016
(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, noncash increases
and decreases related to trading and hedging agreements,
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/20231108682371/en/
Kinetik Investors: (713) 487-4832 Maddie Wagner (713) 574-4743
Alex Durkee Website: www.kinetik.com
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