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Kinetik Reports First Quarter 2024 Financial and Operating Results

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Kinetik Holdings Inc. (NYSE: KNTK) reported a strong first quarter in 2024 with a net income of $35.4 million, a 724% increase year-over-year, and Adjusted EBITDA of $233.6 million, a 25% increase year-over-year. The company achieved a quarterly gas processed volume of 1.53 Bcf/d, up 13% year-over-year. Key highlights include completion of amine treating projects, a long-term agreement with Infinium, and operational expansions in New Mexico. Financially, Kinetik executed a $150 million accounts receivable securitization facility and declared a cash dividend of $0.75 per share. Governance-wise, the company reduced emissions and appointed a new board member. The upcoming events include participation in several conferences.

Positive
  • Generated a strong first quarter net income of $35.4 million, a 724% increase year-over-year, and Adjusted EBITDA of $233.6 million, a 25% increase year-over-year.

  • Achieved quarterly gas processed volumes of 1.53 Bcf/d, up 13% year-over-year, and completed system-wide amine treating projects to handle gas with impurities.

  • Entered a long-term agreement with Infinium for the sale of CO2 and expanded operational capabilities to include gas blending and treating.

  • Executed a $150 million accounts receivable securitization facility, declared a cash dividend of $0.75 per share, and reduced emissions intensities.

Negative
  • None.
  • Generated first quarter net income of $35.4 million, representing a 724% increase year-over-year, and Adjusted EBITDA1 of $233.6 million, representing a 25% increase year-over-year
  • Achieved quarterly gas processed volumes of 1.53 Bcf/d, up 13% year-over-year and down less than 1% sequentially from impacts of planned maintenance, winter weather, and lower Alpine High volumes due to natural gas prices at Waha hub
  • Completed Kinetik’s system-wide front-end amine treating projects, allowing Kinetik to handle natural gas containing elevated levels of carbon dioxide (“CO2”), hydrogen sulfide, and other impurities
  • Entered into a long-term agreement with Infinium to partially dedicate the sale of CO2 produced at one of its processing complexes to be reused for the production of ultra-low carbon electrofuels at Infinium’s Project Roadrunner

HOUSTON & MIDLAND, Texas--(BUSINESS WIRE)-- Kinetik Holdings Inc. (NYSE: KNTK) (“Kinetik” or the “Company”) today reported financial results for the quarter ended March 31, 2024.

First Quarter 2024 Results and Commentary

For the three months ended March 31, 2024, Kinetik processed natural gas volumes of 1.53 Bcf/d and reported net income of $35.4 million.

Kinetik generated Adjusted EBITDA1 of $233.6 million, Distributable Cash Flow1 of $154.5 million, and Free Cash Flow1 of $107.5 million for the three months ended March 31, 2024.

“Kinetik has had a strong start to 2024,” said Jamie Welch, Kinetik’s President & Chief Executive Officer. “In particular, our first quarter results exceeded our internal forecast used to set our full year guidance in February. Adjusted EBITDA1 increased 25% year-over-year reflecting underlying volume growth and contributions from the New Mexico Expansion, Permian Highway Pipeline Expansion, and Delaware Link. With all three of our 2023 major growth capital projects completed and in-service, we can offer producers an integrated wellhead-to-Gulf Coast solution that provides them with reliability and access to premium pricing markets and generates enhanced marketing opportunities for Kinetik, especially in the current commodity price environment where Waha gas daily prices averaged negative $0.72 per MMBtu for the months of March and April. Many of our customers benefited significantly by having their March and April natural gas volumes sold at Gulf Coast pricing.”

“Kinetik has one of the best operational run times in the Permian Basin, and we continue to invest in our assets to maintain this reliability and enhance our efficiencies. The operations team did a great job in the quarter completing the planned molecular sieve bed change outs at several processing facilities, minimizing the amount of downtime required while maintaining flow assurance to our customers. In April, we completed our system-wide amine treating project with the installation at Pecos Bend. With these treating capabilities, we can now offer enhanced blending and treating services to our customers which enables us to accept a broader range of gas quality, resulting in increased revenue.”

“We remain focused on generating value for shareholders. In the first quarter, we facilitated a secondary offering for Apache’s remaining ownership stake in Kinetik. That transaction substantially increased the public float to almost $1.5 billion and our average daily trading volume has increased significantly since the transaction closed. We were pleased to see such high investor demand and interest in the Kinetik story.”

Financial

  1. Achieved quarterly net income of $35.4 million and Adjusted EBITDA1 of $233.6 million.
  2. Executed agreement for a $150 million accounts receivable securitization facility which matures April 2025 with an ongoing renewal mechanism. The net proceeds were used to repay a portion of the outstanding borrowings under Kinetik’s existing Term Loan Credit Facility, and the maturity date of the Term Loan credit facility was extended to December 2026.
  3. Declared a cash dividend of $0.75 per share for the quarter ended March 31, 2024, or $3.00 per share on an annualized basis. This is the first quarter in which all shareholders are eligible to receive a cash dividend following the completion of the core shareholder dividend reinvestment obligation.
  4. Exited the quarter with a Leverage Ratio1,2 per the Company’s Revolving Credit Agreement of 3.8x and a Net Debt to Adjusted EBITDA1,3 Ratio of 4.0x.
  5. Kinetik’s remaining 2024 commodity exposure is less than 5% of gross profit and continues to be actively reduced with the Company’s systematic hedging program.

Selected Key Metrics:

 

 

Three Months Ended March 31,

 

 

2024

 

 

 

 

 

(In thousands, except ratios)

Net income including noncontrolling interest4

 

$

35,407

Adjusted EBITDA1

 

$

233,559

Distributable Cash Flow1

 

$

154,526

Dividend Coverage Ratio1,5

 

1.3x

Capital Expenditures6

 

$

60,772

Free Cash Flow1

 

$

107,511

Leverage Ratio1,2

 

3.8x

Net Debt to Adjusted EBITDA Ratio1,3

 

4.0x

Common stock issued and outstanding7

 

 

153,655

 

 

March 31, 2024

 

December 31, 2023

 

 

 

 

 

 

 

(In thousands)

Net Debt1,8

 

$

3,537,244

 

$

3,589,490

Operational

  1. Placed in-service front-end amine treating at Pecos Bend in April, completing Kinetik’s system-wide treating projects and further expanding the Company’s service offerings to include gas blending and treating.
  2. Placed in-service Kinetik’s gathering system expansion into Lea County, New Mexico on January 18, 2024 followed by commercial in-service of the original underwriting gathering and processing agreement on April 1, 2024.
  3. Completed maintenance projects at several processing facilities enhancing system operational efficiencies and recoveries.

Governance and Sustainability

  1. Entered into a long-term agreement with Infinium for the sale of CO2 captured at one of Kinetik’s processing complexes for use as a feedstock in the production of ultra-low carbon electrofuels at Infinium’s announced Project Roadrunner. The project creates another revenue stream from Kinetik’s CO2 treating infrastructure, without any capital burden or operating expense exposure to Kinetik. This unique agreement supports Kinetik’s broader decarbonization efforts.
  2. In 2023, Kinetik reduced Scope 1 and Scope 2 greenhouse gas and Scope 1 and Scope 2 methane emissions intensities by 12% and 34%, respectively, as compared to its 2021 baseline. This has resulted in the early satisfaction of its 2030 methane emissions intensity reduction target of 30% pursuant to its Sustainability-Linked Financing Framework.
  3. Appointed Bill Ordemann, a retired senior executive from Enterprise Products, to Kinetik’s Board of Directors, replacing Ben Rogers following Mr. Rogers’ resignation in connection with Apache’s exit from its shareholding position.

Upcoming Tour Dates

Kinetik plans to participate at the following upcoming conferences and events:

  1. Citi Energy & Climate Technology Conference in Boston on May 14th - 15th
  2. 20th Annual Energy Infrastructure CEO & Investor Conference in Miami on May 22nd - 23rd
  3. RBC Capital Markets Global Energy, Power & Infrastructure Conference in New York on June 4th
  4. Wolfe Research Small and Mid-Cap Conference in New York on June 5th
  5. JP Morgan Energy, Power & Renewables Conference in New York on June 17th - June 18th

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 first quarter 2024 results conference call on Thursday, May 9, 2024 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 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.

  1. A non-GAAP financial measure. See “Non-GAAP Financial Measures” and “Reconciliation of GAAP to Non-GAAP Measures” for further details.
  2. 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.
  3. Net Debt to Adjusted EBITDA Ratio is defined as Net Debt divided by last twelve months Adjusted EBITDA.
  4. Net income including noncontrolling interest for the three months ended March 31, 2023 was $4.3 million.
  5. Dividend Coverage Ratio is Distributable Cash Flow divided by total declared dividends.
  6. Net of contributions in aid of construction and returns of invested capital from unconsolidated affiliates.
  7. Issued and outstanding shares of 153,655,275 is the sum of 59,712,487 shares of Class A common stock and 93,942,788 shares of Class C common stock as of March 31, 2024.
  8. Net Debt is defined as total long-term debt, excluding deferred financing costs, less cash and cash equivalents.

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 business strategy and other plans, expectations, and objectives for the Company’s operations, including statements about strategy, synergies, sustainability goals and 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 I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023. 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 accordance 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.

KINETIK HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2024

 

 

 

2023

 

 

 

 

 

 

 

 

(In thousands, except per share data)

Operating revenues:

 

 

 

 

Service revenue

 

$

102,195

 

 

$

103,425

 

Product revenue

 

 

236,567

 

 

 

173,824

 

Other revenue

 

 

2,632

 

 

 

3,791

 

Total operating revenues

 

 

341,394

 

 

 

281,040

 

Operating costs and expenses:

 

 

 

 

Costs of sales (exclusive of depreciation and amortization shown separately below) (1)

 

 

153,687

 

 

 

115,877

 

Operating expenses

 

 

43,406

 

 

 

35,973

 

Ad valorem taxes

 

 

6,292

 

 

 

5,458

 

General and administrative expenses

 

 

34,136

 

 

 

27,511

 

Depreciation and amortization expenses

 

 

73,606

 

 

 

68,854

 

Loss on disposal of assets

 

 

4,166

 

 

 

102

 

Total operating costs and expenses

 

 

315,293

 

 

 

253,775

 

Operating income

 

 

26,101

 

 

 

27,265

 

Other income (expense):

 

 

 

 

Interest and other income

 

 

91

 

 

 

294

 

Interest expense

 

 

(47,467

)

 

 

(69,308

)

Equity in earnings of unconsolidated affiliates

 

 

60,469

 

 

 

46,464

 

Total other income (expense), net

 

 

13,093

 

 

 

(22,550

)

Income before income taxes

 

 

39,194

 

 

 

4,715

 

Income tax expense

 

 

3,787

 

 

 

416

 

Net income including noncontrolling interest

 

 

35,407

 

 

 

4,299

 

Net income attributable to Common Unit limited partners

 

 

23,857

 

 

 

2,863

 

Net income attributable to Class A Common Stock Shareholders

 

$

11,550

 

 

$

1,436

 

 

 

 

 

 

Net income attributable to Class A Common Shareholders, per share

 

 

 

 

Basic

 

$

0.12

 

 

$

(0.06

)

Diluted

 

$

0.12

 

 

$

(0.06

)

 

 

 

 

 

Weighted-average shares(2)

 

 

 

 

Basic

 

 

57,869

 

 

 

47,612

 

Diluted

 

 

58,392

 

 

 

47,825

 

(1) Cost of sales (exclusive of depreciation and amortization) is net of gas service revenues totaling $44.5 million and $30.5 million for the three months ended March 31, 2024 and 2023, respectively, for certain volumes where we act as principal.

(2) Weighted average Class A common shares have been retrospectively restated due to bonus effect of Class A common shares issued under the Reinvestment Agreement for all periods presented in which the Class A common shares were outstanding.

KINETIK HOLDINGS INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

 

 

 

Three Months Ended

March 31,

 

 

 

2024

 

 

 

2023

 

 

 

 

 

 

 

 

(In thousands)

Net Income Including Noncontrolling Interest to Adjusted EBITDA

 

 

 

 

Net income including noncontrolling interest (GAAP)

 

$

35,407

 

 

$

4,299

 

Add back:

 

 

 

 

Interest expense

 

 

47,467

 

 

 

69,308

 

Income tax expense

 

 

3,787

 

 

 

416

 

Depreciation and amortization

 

 

73,606

 

 

 

68,854

 

Amortization of contract costs

 

 

1,655

 

 

 

1,655

 

Proportionate EBITDA from unconsolidated affiliates

 

 

88,402

 

 

 

71,867

 

Share-based compensation

 

 

22,561

 

 

 

17,540

 

Loss on disposal of assets

 

 

4,166

 

 

 

102

 

Hedging activities loss (gain)

 

 

15,088

 

 

 

(4,987

)

Integration costs

 

 

41

 

 

 

925

 

Acquisition transaction costs

 

 

 

 

 

268

 

Other one-time costs or amortization

 

 

2,425

 

 

 

3,748

 

Deduct:

 

 

 

 

Interest income

 

 

577

 

 

 

 

Warrant valuation adjustment

 

 

 

 

 

44

 

Equity income from unconsolidated affiliates

 

 

60,469

 

 

 

46,464

 

Adjusted EBITDA(1) (non-GAAP)

 

$

233,559

 

 

$

187,487

 

 

 

 

 

 

Distributable Cash Flow(2)

 

 

 

 

Adjusted EBITDA (non-GAAP)

 

$

233,559

 

 

$

187,487

 

Proportionate EBITDA from unconsolidated affiliates

 

 

(88,402

)

 

 

(71,867

)

Returns on invested capital from unconsolidated affiliates

 

 

77,213

 

 

 

67,764

 

Interest expense

 

 

(47,467

)

 

 

(69,308

)

Unrealized (gain) loss on interest rate derivatives

 

 

(9,377

)

 

 

17,189

 

Maintenance capital expenditures

 

 

(11,000

)

 

 

(4,560

)

Distributable cash flow (non-GAAP)

 

$

154,526

 

 

$

126,705

 

 

 

 

 

 

Free Cash Flow(3)

 

 

 

 

Distributable cash flow (non-GAAP)

 

$

154,526

 

 

$

126,705

 

Cash interest adjustment

 

 

(251

)

 

 

15,374

 

Realized gain on interest rate swaps

 

 

3,952

 

 

 

 

Growth capital expenditures

 

 

(48,253

)

 

 

(64,057

)

Capitalized interest

 

 

(944

)

 

 

 

Investments in unconsolidated affiliates

 

 

(3,273

)

 

 

(58,658

)

Returns of invested capital from unconsolidated affiliates

 

 

1,240

 

 

 

5,793

 

Contributions in aid of construction

 

 

514

 

 

 

669

 

Free cash flow (non-GAAP)

 

$

107,511

 

 

$

25,826

 

KINETIK HOLDINGS INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES (CONTINUED)

 

 

 

Three Months Ended

March 31,

 

 

 

2024

 

 

 

2023

 

 

 

 

 

 

 

 

(In thousands)

Reconciliation of net cash provided by operating activities to Adjusted EBITDA

 

 

 

 

Net cash provided by operating activities

 

$

153,705

 

 

$

119,591

 

Net changes in operating assets and liabilities

 

 

11,504

 

 

 

8,743

 

Interest expense

 

 

47,467

 

 

 

69,308

 

Amortization of deferred financing costs

 

 

(1,699

)

 

 

(1,521

)

Current income tax expense

 

 

127

 

 

 

53

 

Returns on invested capital from unconsolidated affiliates

 

 

(77,213

)

 

 

(67,764

)

Proportionate EBITDA from unconsolidated affiliates

 

 

88,402

 

 

 

71,867

 

Derivative fair value adjustment and settlement

 

 

(5,711

)

 

 

(12,744

)

Hedging activities loss (gain)

 

 

15,088

 

 

 

(4,987

)

Interest income

 

 

(577

)

 

 

 

Integration costs

 

 

41

 

 

 

925

 

Transaction costs

 

 

 

 

 

268

 

Other one-time cost or amortization

 

 

2,425

 

 

 

3,748

 

Adjusted EBITDA(1) (non-GAAP)

 

$

233,559

 

 

$

187,487

 

 

 

 

 

 

Distributable Cash Flow(2)

 

 

 

 

Adjusted EBITDA (non-GAAP)

 

$

233,559

 

 

$

187,487

 

Proportionate EBITDA from unconsolidated affiliates

 

 

(88,402

)

 

 

(71,867

)

Returns on invested capital from unconsolidated affiliates

 

 

77,213

 

 

 

67,764

 

Interest expense

 

 

(47,467

)

 

 

(69,308

)

Unrealized (gain) loss on interest rate derivatives

 

 

(9,377

)

 

 

17,189

 

Maintenance capital expenditures

 

 

(11,000

)

 

 

(4,560

)

Distributable cash flow (non-GAAP)

 

$

154,526

 

 

$

126,705

 

 

 

 

 

 

Free Cash Flow(3)

 

 

 

 

Distributable cash flow (non-GAAP)

 

$

154,526

 

 

$

126,705

 

Cash interest adjustment

 

 

(251

)

 

 

15,374

 

Realized gain on interest rate swaps

 

 

3,952

 

 

 

 

Growth capital expenditures

 

 

(48,253

)

 

 

(64,057

)

Capitalized interest

 

 

(944

)

 

 

 

Investments in unconsolidated affiliates

 

 

(3,273

)

 

 

(58,658

)

Returns of invested capital from unconsolidated affiliates

 

 

1,240

 

 

 

5,793

 

Contributions in aid of construction

 

 

514

 

 

 

669

 

Free cash flow (non-GAAP)

 

$

107,511

 

 

$

25,826

 

KINETIK HOLDINGS INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES (CONTINUED)

 

 

March 31,

 

December 31,

 

2024

 

2023

 

 

 

 

 

(In thousands)

Net Debt(4)

 

 

 

Long-term debt, net

$

3,517,115

 

$

3,562,809

Plus: Debt issuance costs, net

 

29,885

 

 

31,191

Total long-term debt

 

3,547,000

 

 

3,594,000

Less: Cash and cash equivalents

 

9,756

 

 

4,510

Net debt (non-GAAP)

$

3,537,244

 

$

3,589,490

 

(1) Adjusted EBITDA is defined as net income including non-controlling interests adjusted for interest, taxes, depreciation and amortization, impairment charges, asset write-offs, the proportionate EBITDA from unconsolidated affiliates, equity in earnings from unconsolidated affiliates, share-based compensation expense, non-cash 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 non-controlling interests or any other measure of financial performance presented in accordance with GAAP.

(2) Distributable Cash Flow is defined as Adjusted EBITDA, adjusted for the proportionate EBITDA from unconsolidated affiliates, returns on invested capital from unconsolidated affiliates, interest expense, net of amounts capitalized, unrealized gains or losses on interest rate derivatives and maintenance capital expenditures. Distributable Cash Flow should not be considered as an alternative to the GAAP measure of net income including non-controlling 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.

(3) Free Cash Flow is defined as Distributable Cash Flow adjusted for growth capital expenditures, investments in unconsolidated affiliates, returns of invested capital from unconsolidated affiliates, cash interest, capitalized interest, realized gains or losses on interest rate derivatives and contributions in aid of construction. Free Cash flow should not be considered as an alternative to the GAAP measure of net income including non-controlling 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.

(4) 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.

 

Kinetik Investors:

(713) 487-4832 Maddie Wagner

(713) 574-4743 Alex Durkee

Website: www.kinetik.com

Source: Kinetik Holdings Inc.

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