Antero Midstream Corporation ($AM)

Greetings, and welcome to the Antero Midstream Corporation First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Dan Katzenberg, Vice President of Investor Relations. Thank you. You may begin.

Thank you for joining us for Antero Midstream's First Quarter Investor Conference Call. We'll spend a few minutes going through the financial and operating highlights, and then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at anteromidstream.com, where we have provided a separate earnings call presentation that will be reviewed during today's call. Today's call may contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures. Joining me on the call today are Michael Kennedy, CEO and President of Antero Midstream; Justin Agnew, CFO of Antero Midstream; and Brendan Krueger, CFO of Antero Resources. With that, I'll turn the call over to Mike.

Thanks, Dan. Good morning, everyone. I'll start my comments on Slide #3. The first quarter of 2026 was an exciting quarter for Antero Midstream as we continue to make progress on our strategic initiatives. We successfully navigated adverse winter weather conditions and delivered another quarter of EBITDA and free cash flow growth. In addition, we closed the company's largest acquisition to date, in February, which was ahead of our initial expectations. These achievements highlight 2 of Antero Midstream's greatest strengths, a world-class asset base in the lowest cost basin in North America and hard work and dedication from our team. As we look ahead, recent geopolitical events and data center announcements highlight the significant demand growth for U.S. energy, both domestic and abroad. Given this outlook, we are focused on enhancing connectivity within our operating areas, particularly in the dry gas area and the newly acquired assets and providing cost-effective integrated solutions for this demand growth. Our balance sheet, scale and integrated planning with our investment-grade producer position us well to capitalize on these growth opportunities. Now let's move on to Slide #4 to highlight some of our 2026 growth projects. At the end of the first quarter, we commissioned our dry gas compression expansion depicted on the right-hand side of the page. This station utilized relocated and repurposed units to support our first dry gas Marcellus pad in over a decade. During the first quarter, we also commenced our initial water system integration efforts. This capital investment to connect Antero Midstream's water system to the acquired water system and is on track to be completed by year-end and will allow AM to begin servicing completions on the acquired assets in 2027. Today, there are currently 3 rigs running on AM dedicated acreage, 1 on the rich gas system, 1 in the dry gas system and 1 on the acquired blended system. This balanced and consistent development program delivers low-cost volume growth and is expected to drive high single-digit EBITDA growth for the foreseeable future. In summary, we are off to a great start in 2026, executing our capital-efficient growth plan. Beyond our base business, we continue to be active in opportunities to further extend and enhance that growth outlook to support the increasing demand for natural gas. With that, I'll turn the call over to Justin.

Thanks, Mike. I'll start with our first quarter highlights on Slide #5. During the first quarter, we took over operations of our newly acquired assets right in the middle of which [indiscernible] inferred. As you can see from our results, we did not experience any outages during the storm, highlighting the benefit of integrated planning and communication between the upstream and midstream businesses. Adjusted EBITDA for the first quarter was $288 million, which was a 5% increase year-over-year, driven by an increase in gathering, compression and processing volumes. During the quarter, we generated $192 million of free cash flow before dividends and $85 million of free cash flow after dividends, which was an 8% increase year-over-year. This cash flow was used to finance a portion of the acquisition and opportunistically repurchase shares on the open market. Importantly, even after a $1.1 billion acquisition and share repurchases, we exited the quarter with leverage in the low 3x range with over $800 million of liquidity. Looking ahead to the next few quarters, we expect an increase in capital expenditures as we take advantage of improved construction season conditions in line with our full year budget. In addition, we expect to see gradual EBITDA growth throughout the year, driven by increasing gathering and fresh water delivery volumes. This cash flow profile results in declining leverage throughout the year towards 3.0x at year-end 2026, in line with our long-term target. In summary, we continue to build on the growth and momentum from our organic investments in accretive acquisitions. These results place us on track to achieve our 2026 guidance, which remains unchanged and position us well for capital-efficient growth over the next several years. With that, operator, we are ready to take questions.

[Operator Instructions] And our first question comes from John Mackay with Goldman Sachs.

Maybe we'll start on the kind of in-basin demand side of things. There's a couple of projects floating around, a lot of eyeballs on Monarch, et cetera. I know you guys are kind of too early, and you touched on this on the AR call as well. But do you mind kind of just framing up of what you guys could see the opportunity set for AM looking like here again? And if you want to use a generic kind of EBITDA per gigawatt or anything like that? Just kind of frame us up how you're thinking about the AM side of things here.

Yes. We're not going to use a generic metric there, but AM is participating in all of those because the vast majority of these need some infrastructure laterals off existing pipe, that Brendan talked about, water, some sort of infrastructure build out from the existing infrastructure and AM got seated table, all those discussions because like I mentioned, we are the industrial builder of Northern West Virginia. We built all of this infrastructure. It's all been a greenfield expansion for us from a gathering, compression, processing and water and about the whole system here. So we are the builder of choice, and that's part of the attraction of what AR and AM bring. It's an integrated development between upstream and midstream. We have the resource, and we have the ability to build the infrastructure.

Maybe just to clarify, any sense you guys could give on just kind of how long of a time line would be needed to kind of support a larger project?

Well, we're mainly talking about everything in states, so it wouldn't be that long of a time line, it would just be our typical kind of high-pressure build in kind of year 1, 2, 3, not 5 years out.

Great. And then second question for me. You guys mentioned the kind of high single-digit growth target. Could you just frame that up a little bit around what that implies for AR's underlying growth? AR kind of came out with a kind of higher growth pace on the last quarter call. Just trying to figure out where that shakes and then again kind of what the AM algorithm off that is?

Yes, that's off the base business. You get to the high single digit just from integrating the water system in '27. So just servicing ARs from a water perspective gets you at high single digit. If AR actually does pursue the 3 rigs, 2 completions and doesn't build DUCs and actually complete those, you'd be in excess of that high single-digit EBITDA growth in '27 and '28.

[Operator Instructions] Your next question comes from Ivan Scotto with UBS.

Team, I wanted to ask for any additional color you have on how much capital is needed to fully integrate the acquired HG assets? And also how far along that process do you think you are at this point?

Think it's $25 million, probably halfway through, like I mentioned that the water system we cement that in the first quarter that will be done by year-end. The other -- the gathering system almost already fully integrated. I think it was $5 million to connect that. So it's really around the water, and we're in the midst of it and should be completed by year-end.

Okay. Great. And then just looking forward, where do you feel that most of your opportunity set is for incremental returns in the future?

I think around these data center local power projects, our base business delivers very high rates of return. I think it's in the high teens, 20% return on invested capital in the base, and we've got that fully mapped out. We've built the whole backbone of the system, the whole water pipes, the large gathering system that we've got. I think the incremental returns will just be building off of that and building off of our relationship. They are and our own ability to build industrial projects in Northern West Virginia. That's kind of the next leg. The base is terrific, high single-digit EBITDA growth. We've had quite some time and will going forward, but incremental growth and returns from that will be from these local demand projects.

And ladies and gentlemen, there appears to be no additional request for questions at this time. So I'll hand the floor back to our management team for closing remarks. Thank you.

Yes. Thank you for joining us on today's earnings conference call. Please feel free to reach out with any further questions. Have a good day.

Thank you. And that concludes today's call. All parties may disconnect.