Executive Summary / Key Takeaways

• Antero Midstream ($AM) is strategically positioned in the Appalachian Basin, primarily servicing Antero Resources through integrated gathering, processing, and water handling infrastructure under long-term, fixed-fee contracts.
• The company demonstrates strong operational efficiency, notably through the successful reuse of underutilized compressor units, generating significant cost savings and enhancing capital efficiency, contributing to a record 19% Return on Invested Capital in 2024.
• Recent financial performance shows solid growth, with Q1 2025 revenues increasing 4% year-over-year, driven by volume growth and CPI escalators, while achieving a leverage ratio of approximately 2.9x as of March 31, 2025, ahead of schedule.
• The 2025 outlook projects continued mid-single-digit EBITDA growth and a 10% increase in Free Cash Flow after dividends at the midpoint, supported by a disciplined capital budget of $170 million to $200 million aligned with AR's maintenance plan.
• AM's robust balance sheet and increasing free cash flow enable a flexible capital allocation strategy focused on maintaining an attractive dividend ($0.90/share expected) and returning incremental capital through share repurchases, alongside opportunistic debt reduction and bolt-on M&A.

Antero Midstream Corporation ($AM) operates as a vital link between the prolific natural gas and liquids production in the Appalachian Basin and downstream markets. Formed to support the development activities of its primary customer, Antero Resources (AR), AM has built a comprehensive network of gathering pipelines, compressor stations, and water handling systems across West Virginia and Ohio. This infrastructure is underpinned by long-term, fixed-fee contracts, providing a stable revenue base largely insulated from direct commodity price volatility.

Within the competitive landscape of U.S. midstream, AM operates alongside larger, more diversified players like Enterprise Products Partners (EPD), Kinder Morgan (KMI), The Williams Companies (WMB), and ONEOK (OKE). While these competitors boast greater scale and broader geographic footprints, AM's strength lies in its deep integration with AR and its specialized focus within the Appalachian region. This strategic alignment allows AM to tailor its infrastructure development precisely to AR's needs, enabling a just-in-time capital investment philosophy that enhances efficiency. AM's operational focus, particularly in water handling, offers specialized capabilities like integrated blending facilities, providing a regional competitive edge.

AM's strategy has evolved over the past decade, marked by consistent growth and a recent pivot towards maximizing shareholder returns. Following a significant corporate restructuring in 2019 that consolidated assets and expanded its service offerings, the company has emphasized capital efficiency and free cash flow generation. Since 2020, AM has successfully financed nearly $300 million in accretive bolt-on acquisitions entirely through internally generated cash flow, demonstrating disciplined capital allocation and the ability to integrate strategic assets effectively.

Operational Excellence and Technological Edge

A key differentiator for Antero Midstream lies in its operational efficiency and innovative approach to capital deployment. The company has successfully implemented a program to repurpose underutilized compressor units from existing infrastructure. This initiative significantly reduces the capital required for new compressor stations.

The recently commissioned Torrey's Peak Compressor Station, brought online ahead of its initial second-quarter 2025 schedule, is a prime example. This station, constructed using relocated units, resulted in approximately $30 million in reuse savings at that specific site. Across the three stations where this repurposing strategy has been employed, total savings exceed $50 million. Management anticipates over $60 million in additional reuse savings over the next five years, highlighting a sustainable operational advantage that directly contributes to lower capital expenditures and higher returns on invested capital.

Beyond compression, AM is making significant investments in its water handling system. The 2025 capital budget includes approximately $85 million dedicated to this segment, focusing on expanding the system to the southern half of the Marcellus footprint. This expansion aims to create a single, integrated water system across AR's liquids-rich acreage. This operational enhancement is designed to support more capital-efficient development and provide increased flexibility for AR's drilling and completion activities over the next decade. This integrated approach to water management is a specialized capability that differentiates AM within its operating region.

Financial Strength and Performance Trajectory

Antero Midstream's operational discipline and strategic focus are reflected in its solid financial performance. For the three months ended March 31, 2025, total revenues increased by 4% year-over-year to $291.1 million. This growth was primarily driven by a 5% increase in Gathering and Processing revenues ($228.7 million) and a 3% increase in Water Handling revenues ($62.4 million). The increases in gathering and processing were fueled by higher throughput volumes across low pressure gathering (up 0.3%), compression (up 1.0%), and high pressure gathering (up 3.6%), coupled with annual CPI-based fee adjustments. Water handling saw a decrease in fresh water delivery volumes (down 8.3%) but an increase in other fluid handling services (up 2.3%), leading to a modest overall revenue increase for the segment.

Operating income for the first quarter of 2025 rose to $177.2 million from $166.3 million in the prior year period, a 6.6% increase. Direct operating expenses saw a 5% increase, mainly due to higher costs in the water handling segment related to increased blending and wastewater handling. Depreciation expense decreased by 12%, benefiting from the compressor unit repurposing program. Interest expense declined by 9%, reflecting the retirement of the 2026 Senior Notes and lower rates on Credit Facility borrowings, despite slightly higher outstanding balances.

The company reported net income of $120.7 million for Q1 2025, up from $103.9 million in Q1 2024. This translated to diluted net income per common share of $0.25, compared to $0.21 in the prior year. For the full year 2024, AM achieved its tenth consecutive year of EBITDA growth, reaching $1.05 billion. The company also reported a record Return on Invested Capital of 19% in 2024, a testament to its capital efficiency and the accretive impact of bolt-on acquisitions.

AM has significantly strengthened its balance sheet, achieving its target consolidated total leverage ratio of below 3.0 times during the fourth quarter of 2024, a year ahead of its initial schedule. As of March 31, 2025, the leverage ratio further declined towards 2.9 times. The company's Credit Facility provides ample liquidity, with $773 million of available borrowing capacity as of the end of the first quarter. Successful refinancings in 2024, including the issuance of $600 million in 6.625% Senior Notes due 2032 and the extension of the Credit Facility maturity to 2029, have enhanced financial flexibility and reduced future interest costs.

Outlook and Shareholder Returns

Antero Midstream's outlook for 2025 is positive, underpinned by a stable development plan from Antero Resources and continued operational efficiency. The company's 2025 capital investment budget is set between $170 million and $200 million, designed to support AR's maintenance capital program. This budget includes approximately $85 million for gathering and compression (including remaining capital for Torrey's Peak) and $85 million for water handling system expansion, plus a $15 million investment in the Stonewall joint venture to facilitate third-party access. Management has secured materials and pricing for pipelines through 2026, mitigating potential impacts from macroeconomic factors.

Based on AR's expected activity of approximately two rigs and just over one completion crew on dedicated acreage, AM forecasts low to mid-single digit year-over-year growth in gathering volumes in 2025. Freshwater delivery volumes are expected to remain consistent year-over-year. Combined with annual CPI-based fee adjustments, this volume growth is projected to result in mid-single-digit EBITDA growth for 2025. Lower expected interest expense will further contribute to cash flow generation.

The company anticipates generating $250 million to $300 million in free cash flow after dividends in 2025, representing a 10% increase at the midpoint compared to 2024's record $250 million. This robust free cash flow generation, coupled with the strengthened balance sheet, positions AM to return significant capital to shareholders. The company expects to maintain its attractive quarterly cash dividend of $0.23 per share ($0.90 annualized). Remaining free cash flow is planned to be allocated towards share repurchases and additional debt reduction. As of March 31, 2025, AM had approximately $443 million remaining under its share repurchase authorization, having repurchased $29 million in Q1 2025. Management views share buybacks as particularly attractive given the current equity valuation relative to cash flow.

The broader market environment in Appalachia also supports AM's long-term outlook. The region is increasingly becoming a hub for natural gas demand from power generation, data centers, and industrial projects. Management notes that expectations for power required by data centers by 2030 have doubled in the last six months, with the percentage expected to be powered by natural gas increasing from 50% to 70%. AM's extensive infrastructure is well-positioned to support this growing regional demand.

Risks and Challenges

Despite its strong position and positive outlook, Antero Midstream faces several risks. The most significant is its substantial dependence on Antero Resources as its primary customer. While the long-term contracts and AR's improved financial health mitigate some risk, any event negatively impacting AR's production, development plans, or financial condition could materially affect AM's revenues and operations. The risk of non-payment or non-performance by AR, though currently not expected to cause significant variability, remains a factor.

Commodity price volatility, while not directly impacting AM's fixed fees, can influence AR's drilling and completion activity, thereby affecting AM's throughput volumes. Inflationary pressures and supply chain disruptions could increase AM's operating and capital costs, although CPI adjustments provide partial mitigation. The ongoing lawsuit with Veolia Water Technologies regarding the Clearwater Facility presents a contingent risk, with appeals pending regarding the substantial damages awarded to AM's subsidiary. While the court has ruled in AM's favor, the final outcome and timing of any cash inflow remain uncertain.

Conclusion

Antero Midstream is a compelling investment case built on a foundation of strategic positioning, operational efficiency, and a commitment to shareholder returns. Its integrated midstream system in the Appalachian Basin, tightly coupled with Antero Resources, provides a stable, fee-based revenue stream. The company's focus on capital efficiency, highlighted by its successful compressor unit repurposing program and integrated water system expansion, drives strong returns on invested capital.

With a robust balance sheet, having achieved its leverage target ahead of schedule, and a clear path to increasing free cash flow generation in 2025, AM is well-positioned to execute its flexible capital allocation strategy. This strategy prioritizes maintaining an attractive dividend and returning incremental capital through share repurchases, offering direct value to shareholders. While customer concentration and the ongoing lawsuit present risks, AM's operational strengths, financial health, and exposure to growing regional gas demand position it favorably within the midstream sector. The company's outlook suggests a continued trajectory of stable growth and enhanced shareholder value creation.