DT Midstream, Inc. (DTM) Earnings Call Transcript & Summary

Welcome to the DT Midstream Second Quarter 2026 Earnings Call. [Operator Instructions] I will now turn it over to our speaker today, Todd Lohrmann, Director of Investor Relations. Thank you. Please go ahead.

Good morning, and welcome, everyone. Before we get started, I would like to remind you to read the safe harbor statement on Page 2 of the presentation, including the reference to forward-looking statements. Our presentation also includes references to non-GAAP financial measures. Please refer to the reconciliations to GAAP contained in the appendix. Joining me this morning are David Slater Executive Chairman and CEO; Chris Zona, President and COO; and Jeff Jewell, Executive Vice President and CFO. So with that, I'll go ahead and turn the call over to David.

Thanks, Todd, and good morning, everyone, and thank you for joining. During today's call, I'll highlight our key accomplishments for the quarter and discuss the constructive market fundamentals driving demand across our footprint. I'll then turn it over to Chris and Jeff to review our commercial activity, project execution and financial performance and outlook. So with that, midway through the year, we continue to execute our focused strategy while delivering strong results. The organization is firing on all cylinders, giving us confidence in our full year plan and the future. We're successfully converting strong demand from LNG, power generation and data center development into new commercial opportunities organic growth across our footprint. With today's announcements, we have now commercialized 60% of our $3.4 billion organic project backlog with more than 80% of this being committed to pipeline projects. The momentum we're seeing across our business is underpinned by durable market fundamentals that will support growth for many years to come. Market environment continues to reinforce the critical role of natural gas infrastructure with both domestic and global demand growth, highlighting the importance of reliable, secure and affordable energy supply. A study released earlier this year by the Inga Foundation concluded that North America will require over $1 trillion of new pipeline infrastructure investment over the next 25 years, highlighting the significant need to connect supply to growing demand centers, supporting the strong investment thesis in natural gas pipeline infrastructure in North America. Internationally, growing LNG demand and ongoing supply disruptions are favoring U.S.-sourced LNG exports as a secure and reliable procurement strategy. We continue to believe this dynamic will support additional LNG-related infrastructure investment along the Gulf Coast, creating expansion opportunities across the natural gas value chain, including on our Haynesville system. Natural gas also remains the most reliable and affordable domestic energy source available at scale and plays a critical role in supporting future power demand growth. Our interstate gas pipeline footprint is strategically located to serve this growth, and we continue to advance multiple opportunities across our systems supported by these favorable market fundamentals. I'll now turn it over to Chris to walk you through the commercial activity and construction projects that are converting this demand into growth across our footprint.

Thanks, David. Good morning, everyone. As David indicated, the second quarter was another active quarter for us commercially, and we are announcing today that we've reached FID and approximately $300 million of new organic growth projects from our capital project backlog. Unpacking the new investment projects, the first is an expansion of our Haynesville system, which increases our access to East Texas supply expands our LEAP pipeline by 200 MMcf per day and is supported by new long-term agreements with 2 producer customers. The expansion brings total capacity of LEAP to 2.3 Bcf per day through a combination of incremental compression and looping with an expected in-service date during the second half of 2028. This project highlights our commercial capability to provide timely, competitive customer solutions and the unique advantages of our Haynesville system, which combines premier basin connectivity, direct LNG market access and efficient scalable infrastructure. The next project we are moving forward with is the first phase of modernization on Viking, which will improve the reliability of this critical capacity serving the Twin Cities in Minnesota and is expected to be in service in Q4 2028. This investment reflects the continued modernization opportunities we see across our interstate pipelines. With the first phases of Guardian and Western advancing as planned, including the recent FERC approval of the filing for Guardian Phase I. During the quarter, we also executed a new long-term gathering agreement supporting a 100 MMcf per day expansion of our Appalachic gathering system, which will be in service in Q4 2027, delivering supply into NEXUS and Texas Eastern. This is a demand-based contract reflecting growing producer activity in the region. Finally, we commercialized another new interconnect on NEXUS this quarter, which will have a capacity of 380 MMcf per day and will provide supply for a natural gas fired power generation facility to power a new data center in Ohio. Combined with the interconnect we announced on the first quarter call, we are adding over 0.5 Bcf of demand pool to the main line of NEXUS. Taken together, these new projects highlight the breadth of organic opportunities we continue to see across our footprint and our ability to commercialize these all of which are supported by long-term contracts and durable customer demand. Looking beyond today's announcements, we continue to see a robust set of future expansion opportunities across our footprint. Projects such as the miss expansion on our Midwestern pipeline and Vector 2030 expansion are advancing through the commercialization process and we remain encouraged by ongoing customer discussions and the demand outlook supporting these opportunities. On [ Miss ] specifically, we see the project likely coming in multiple phases with cell-bound and northbound expansions. We are advanced in the process of commercializing binding agreements with the next milestone being a binding open season. Overall, these opportunities reinforce our confidence in the long-term growth potential around our assets reflected in our capital project backlog, and we will keep you updated as we continue to move them forward. Turning to our construction projects. We successfully filed the FERC 7C application for our Guardian G3 expansion project in June and all of our other in-flight growth investments remain on track and on budget. Finally, operationally, for the quarter, total gathering volumes for the Haynesville averaged 2.2 Bcf per day, an all-time record throughput on our system for a quarter. In the Northeast, volumes averaged 1.38 Bcf per day. Looking ahead to the third quarter, we expect Haynesville volumes to be in line with the second quarter and Northeast volumes to be lower due to timing of producer activity. I'll now pass it over to Jeff to walk you through our quarterly financials and outlook.

Thanks, Chris, and good morning, everyone. In the second quarter, we delivered adjusted EBITDA of $305 million representing a $3 million decrease from the prior quarter. Our Pipeline segment results were $14 million lower than the prior quarter, driven by seasonally lower revenues from our joint venture pipelines and higher revenue on Stonewall. Gathering segment results were $11 million greater than the prior quarter, reflecting higher volumes on Blue Union. Growth capital investment for the second quarter was $86 million, which is in line with our plan and we expect a ramp in growth capital over the balance of this year. As you look to the second half of the year, we expect the third quarter to be in line with our full year guidance, but to be lower than the strong second quarter driven by maintenance across our gathering network. And as Chris noted, Northeast volumes are expected to be lower due to timing of producer activity. We are confident in our full year outlook and thus, are reaffirming our 2026 adjusted EBITDA guidance range and our 2027 adjusted EBITDA early outlook. The new investments that reached FID this quarter will increase our 2026 and 2027 committed capital to approximately $425 million in 2026 and approximately $560 million in 2027. Our balance sheet is very healthy and in a strong position with two of the rating agencies recently raising our leverage downgrade thresholds, Moody's from 4.0 to 4.25x on a proportionate basis, and Fitch from 4.0 to 4.5 or an on balance sheet. Finally, today, we also announced that our Board of Directors approved our second quarter dividend of $0.88 per share unchanged from the prior quarter, and we remain committed to grow the dividend in line with adjusted EBITDA. I'll now pass it back over to David for closing remarks.

Thanks, Jeff so in summary, we remain confident in delivering on our guidance, continuing our strong track record of disciplined execution, while advancing organic growth opportunities across our footprint. Our team is executing well, focusing on our customers' growing needs, which are high-quality pure-play natural gas pipeline portfolio is positioned to serve. The long-term outlook for natural gas infrastructure in North America remains highly constructive, supported by growing LNG and power demand and the increasing need for reliable, affordable and secure energy. And with that, we can now open up the line for questions.

[Operator Instructions] And your first question comes from the line of Theresa Chen.

Would you elaborate on the commercialization progress and process for Mist at this point? specifically on the size and scope of the phasing approach and how you see the competitive landscape evolving over the next few months?

This is David. And good to hear from you. And I'll start, and Chris, maybe you can jump in and fill it in a bit. But I'd say I'm just going to elevate the conversation for a second and just remind everybody we're focused on the customer need and the customer need is the ultimate driver. So that demand growth and the timing of that demand growth is the driver behind the commercialization time line for [ Mist ]. I think as Chris alluded, and I think as we've discussed in the past, the project seems to be phasing into a southernly and northerly type expansion. In terms of size, scale, Chris, maybe you want to add a little color to that?

Sure, David. I would say that it's a bit early here for us to really disclose anything related to the size and scope of that. I mean as David mentioned, we're really focused on the customer needs. And I think in our view, remains the first phase could be in service as early as end of 2029. But again, that's all going to be dictated by what the customer needs are. And the commercialization process, we are working on the binding precedent agreements and that's going well. I'll just say that given the amount of demand in the area, we remain very encouraged by what we're seeing in the conversations that are ongoing. So I think that's kind of where we sit today.

Yes, Theresa, I think we said in the past, and maybe I'll just reiterate it here is that from a size and scale perspective, I think we've always compared this to G3 is something similar in size and scale as G3. But like Chris said, this is very fluid. And is it crystallizes or as the [indiscernible] rises, we'll give you more detail. So stay tuned.

Understood. And maybe on the supply options for this project. What factors are influencing your decisions and development process here. Can you just help lay out the different options between in REX, Borealis or the alternatives and what you're seeing there? And then maybe specific to the Borealis relative to [indiscernible] in particular, given this potential role as a supply source, but at that the same time, there's good debate on future TGT lateral expansions that could also expand it to some of the similar markets targeted by [indiscernible] So can you just help clarify to what extent do you see Mist and Borealis as complementary versus competitive over the long term?

Yes. I think. Here's how to think about it, Theresa, is that Midwestern is the last mile to the load center. And the one benefit or positioning that Midwestern has in the market is as multiple supply sources into that pipe, right? It's a north-south pipe, Chicago to Nashville. It can be fed by Vector, it can be fed by Alliance. It can be fed by REX. It can be fed by Texas Gas and it can also be fed in the south by Tennessee Gas. So we've got a very diverse supply path optionality that's embedded in the pipeline. That's one of the features that makes this asset very attractive from a customer perspective, a lot of supply optionality and flexibility. So that's how the pipe operates today. That's how I expect that we'll continue to operate in the future. So we're somewhat agnostic to the supply pathway. So if Borealis commercializes, that's great. We would expect that, that would add additional supply to the southern end of the system. REX does an expansion, that's great, too. It will put supply right in the middle of the system. And obviously, we're working on a vector expansion that put supply on the north end of the system. So -- that's a feature that I think puts us in good standing with the customers in terms of as they look at developing and as the demand grows, obviously, customers want to have multiple supply optionality to serve their demand, and Midwestern offers that.

Your next question comes from the line of Jean Ann Salisbury.

If Emerge project begin to expand Algonquin into New England moves forward, does that materially increase the need for Millennium Pro or maybe another third-party pipeline option that sources gas from Appalachia?

Great question. Beacon is sourcing its supply from Millennium, a point called Ramapo on Millennium. So we're very supportive of the Beacon project. as that project commercializes, those shippers are speaking directly with Millennium to bring incremental supply to the receipt point on that project. So you can almost think of the 2 projects as tandem projects. They're very complementary to each other. So I think the short answer is yes. As Beacon commercializes, that's going to drive incremental opportunity on Millennium.

Very clear. And then as the gas pipelines in the Permian come online over the next couple of years, there could be a lot more Permian gas coming to the LNG corridor. Is there some risk that you see that may be less Haynesville gas will need to go to the LNG than was previously thought and more will kind of go towards the Southeast? And does that change your outlook for getting to the full 4 Bcfd on LEAP over time?

I think our view on the Permian is supported by some of our actions here over the last couple of years, where we've been really intentional about enhancing our connectivity to Carthage. We believe Carthage will be one of the landing zones for Permian gas as it pushes easterly. And the Permian gas is chasing both LNG demand, but it's also chasing domestic demand as well. So that -- the expansion that Chris talked about this morning is going to enhance our connectivity to Carthage, kind of for the reason that you just described. In terms of the demand growth over the next 5 to 10 years, it's incredibly robust. And it's going to need all of that Permian gas and it's going to need significant incremental Haynesville gas. So we're in a robust demand environment right now where all basins will need to grow. And I believe that will drive opportunities across the entire pipeline ecosystem?

Your next question comes from the line of Spiro Dounis.

I wanted to start with 27 CapEx quickly. The slide seems to point to maybe a step change there, realize no numbers are involved, but it seems like a nice gap up. So I'm curious what's changed since your last update? How much of that is an acceleration of projects into '27 versus maybe new opportunities you're potentially seeking here?

Are. I think it's as simple as the projects that we FIDed. We give 2 years forward detailed view of the CapEx and what you're seeing here on that slide is really the portion of CapEx related to those projects that we announced today and how much of that falls in '26 and '27.

Understood. Second question, hoping to not get you to repeat yourself, but just wanted to go back to your competitive advantage in and around [indiscernible] in that region. A lot of inflight projects from competitors kind of announced the net neck of the woods. So I'm just curious on like you're not to in some cases, but could you maybe just put a finer point on how you see your competitive advantage there? And maybe what more of a blue Scott scenario is for DTM. Is this in a situation where everybody wins? Or is this not really sort of more of a net zero game?

Yes. That's an interesting question. I mean I'm probably going to repeat what I said earlier is that for existing infrastructure, it's kind of like real estate, location, location, location, right? So where the demand manifests if you were the asset in the ground that's nearest to that demand, you're going to have an advantage. And -- so again, I view Midwestern as sort of the last mile to the demand, where the demand is manifesting. How the supply navigates to Midwestern is to be determined. And as I said earlier, the big advantage that Midwestern has is that it's not married to one supply pathway. So you don't have to sign up for the big ticket for lack of a better word. You can take out the last mile, you have lots of supply optionality and then you can sort of diversify your supply sourcing strategy. So that's the way I would think about it. and how things evolve upstream of Midwestern back into the various basins, I think those dominoes are yet to fall.

Your next question comes from the line of Keith Stanley.

First, I wanted to clarify on Mist. David, when you say you expect it to be comparable to G3 in size and scale, are you referring to the capacity of the project or more the amount of capital investment.

Yes. And yes. I think that's how I framed it probably 2 quarters ago. It's size and scale similar to G3 on a lot of different metrics.

Okay. Second question. Any early conversations you could point to with utilities on the need for a Guardian G4. I think [indiscernible] said they they plan to update next quarter on some of their plans around the nuclear plant and the like. Do you think, I guess, G4 could start to get commercialized later this year once the utilities update their plans? Or is that more likely a 2027 event?