Kinetik Reports Second Quarter 2024 Financial and Operating Results

HOUSTON & MIDLAND, Texas--(BUSINESS WIRE)--Kinetik Holdings Inc. (NYSE: KNTK) ("Kinetik" or the "Company") today reported financial results for the quarter ended June 30, 2024.

Second Quarter 2024 Results and Commentary

For the three and six months ended June 30, 2024, Kinetik reported net income including noncontrolling interest of $108.9 million and $144.4 million, respectively.

Kinetik generated Adjusted EBITDA¹ of $234.4 million and $468.0 million, Distributable Cash Flow¹ of $162.9 million and $317.4 million, and Free Cash Flow¹ of $105.4 million and $213.0 million for the three and six months ended June 30, 2024, respectively.

For the three months ended June 30, 2024, Kinetik processed natural gas volumes of 1.58 Bcf/d.

"The second quarter was a major step towards our ultimate vision for Kinetik," said Jamie Welch, Kinetik's President & Chief Executive Officer. "In June, we closed our two largest transactions since the merger in 2022, expanding our system footprint into Northern Eddy and Lea Counties, New Mexico. This quickly followed the in-service of our organic gathering expansion into Lea County at the beginning of 2024, and most recently, Kinetik expanded gathering, treating, and processing services with one of our largest customers in Lea County, New Mexico. This new amendment increases the existing MVC while also expanding overall margin. A year ago, we had zero operations in the New Mexico Delaware Basin, and today, nearly 20% of our volumes are sourced from New Mexico."

"The Durango acquisition, a Lea County gas gathering and processing amendment, and the previously announced long-term gas gathering and processing agreement in Eddy County represent approximately $1 billion of strategic investment at a mid-single digit Adjusted EBITDA¹ multiple and significantly enhance our position across the entire Delaware Basin."

"We are in the middle of our 100-day plan to integrate Durango's assets, processes, and personnel, all while expanding Durango's geographic scope and system scale. We are pleased with the overall performance of the business, and we have already identified a number of process and system improvements that will create immediate economic value. The Operations team's project plan includes preventative maintenance, facility upgrades and capacity expansions to existing infrastructure at the Dagger Draw and Maljamar processing complexes. Back-office integration and the implementation of Kinetik's Environmental, Health and Safety program are now complete. Additionally, we have welcomed over 70 talented employees to the Kinetik team."

He went on to add, "The Commercial team has been very active with current and prospective customers in New Mexico. We remain highly focused on completing construction of Kings Landing I on time with expected in-service in April 2025, and we have now sanctioned the pre-FID work scope and long-lead critical path items for a second train at the Kings Landing Processing Complex. Growing producer demand in the region and attractive opportunities to connect our Texas System with the Durango system in the Northern Delaware Basin has accelerated the sanctioning of Kings Landing II."

"Our base business continues to perform well versus our internal expectations outlined in February. Processed natural gas volumes in the quarter were 1.58 Bcf/d, representing a 7% increase year-over-year, despite continued wellhead volume curtailments in response to Waha Hub pricing, which were approximately 140 Mmcf/d."

Welch continued, "Adjusted EBITDA¹ increased 13% year-over-year, reflecting new volumes from the MVC-backed Lea County agreements and improved commodity margins, as well as contributions from the Permian Highway Pipeline Expansion and Delaware Link, which were partially offset by price-related gas volume curtailments and only two months of contributions from GCX. If we closed Durango contemporaneously with the sale of GCX, Kinetik's second quarter Adjusted EBITDA¹ would have increased to nearly $238 million. With the successful completion of the Durango and GCX transactions, we are revising upwards our 2024 Guidance."

"I am incredibly proud of our team's execution, focus and dedication to closing two transactions in the month of June and the completion of the integration process. These actions represent a significant step on our corporate journey and achievement of our financial targets."

Revised 2024 Guidance and Outlook

On February 28, 2024, Kinetik provided 2024 Guidance, including full year Adjusted EBITDA¹ of $905 million to $960 million and Capital Expenditures² of $125 million to $165 million.

Following (i) earnings outperformance to budget in the first half of 2024, (ii) the successful completion of the Durango acquisition, and (iii) the divestiture of the Company's equity interest in GCX, Kinetik is revising its 2024 Guidance upwards.

Kinetik now estimates full year 2024 Adjusted EBITDA¹ between $940 million and $980 million, a 3% increase at the midpoint versus the previous guidance range and implies over 14% Adjusted EBITDA¹ growth year-over-year.

Adjusted EBITDA¹ Guidance assumptions include:

• Approximately six months of Durango's existing business;
• High-teens growth of gas processed volumes across Kinetik system;
• Divestiture of the 16% non-operated GCX equity interest at the start of June 2024;
• Updated commodity prices of approximately $77 per barrel for WTI, $2 per MMBtu for Houston Ship Channel natural gas, and $0.60 per gallon for natural gas liquids for the remainder of the year; and
• Unhedged commodity exposure is approximately 7% of expected remaining gross profit.

For Capital Expenditures² including maintenance capital, Kinetik now estimates guidance to be $260 million to $300 million. This increase reflects capital for (i) the construction of Kings Landing I and pre-FID spend for Kings Landing II, (ii) the new and amended long-term gathering and processing agreements in Eddy and Lea Counties, New Mexico, and (iii) capital for integration, growth and maintenance costs associated with the existing Durango business.

As previously stated, the acquisition and capital projects carry an attractive mid-single digit build-cost multiple and are expected to be over 10% accretive to free cash flow per share starting the second half of 2025.

Capital Allocation Priorities

The Company remains focused on its disciplined capital allocation priorities that maximize shareholder value. The achievement of its leverage target of 3.5x represents one of its core financial priorities and now provides Kinetik with broader capital allocation flexibility going forward.

Financial

1. Achieved quarterly net income of $108.9 million and Adjusted EBITDA¹ of $234.4 million.
2. Declared a dividend of $0.75 per share for the quarter ended June 30, 2024, or $3.00 per share on an annualized basis.
3. Exited the quarter with a Leverage Ratio^1,3 per the Company's Credit Agreement of 3.4x and a Net Debt to Adjusted EBITDA^1,4 Ratio of 3.8x.

Selected Key Metrics:

		Three Months Ended June 30,			Six Months Ended June 30,
		2024			2024
		(In thousands, except ratios)
Net income including noncontrolling interest5		$	108,948		$	144,355
Adjusted EBITDA1		$	234,403		$	467,962
Distributable Cash Flow1		$	162,892		$	317,418
Dividend Coverage Ratio1,6		1.4x			1.4x
Capital Expenditures2		$	38,046		$	98,818
Free Cash Flow1		$	105,449		$	212,960
Leverage Ratio1,3					3.4x
Net Debt to Adjusted EBITDA Ratio1,4					3.8x
Common stock issued and outstanding7						157,519

		June 30, 2024			March 31, 2024
		(In thousands)
Net Debt1,8		$	3,423,251		$	3,537,244

Operational

1. Construction continues on the 200 Mmcf/d Kings Landing I in Eddy County, New Mexico. The project is on schedule with an expected in-service in April 2025.
2. Commenced construction on low- and high-pressure gas gathering and processing project for the New Eddy County Agreement. The contract begins at year-end with gathering services, extending to processing in the second quarter 2025.
3. Executed new amendment to existing gas gathering, treating, and processing agreement with one of Kinetik's largest customers in Lea County, New Mexico, increasing the MVC and expanding margins beginning in November 2024.
4. Sanctioned pre-FID work scope and procurement of long-lead critical path items for Kings Landing II in response to growing producer demand and attractive commercial opportunities.
5. Advanced subsurface and permitting workstreams for an acid gas injection well at Kings Landing that enables a valuable treating solution for natural gas containing high levels of H₂S and CO₂.

Governance and Sustainability

1. Received 2023 Safety Award from GPA Midstream Association for outstanding safety performance.
2. Publishing its 2023 Sustainability Report in August 2024.

Upcoming Tour Dates

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

1. Raymond James Virtual Industrial & Energy Showcase on August 9th
2. Citi One-on-One Midstream & New Energy Infrastructure Conference in Las Vegas on August 13th - 14th
3. Barclays CEO Energy-Power Conference in New York on September 4th - 5th
4. Wolfe Utilities, Midstream & Clean Energy Conference in New York on October 1st - 2nd
5. Citadel Securities Energy Investor Day in New York on October 3rd

Investor Presentation

An updated investor presentation will be available under Events and Presentations in the Investors section of the Company's website at ir.kinetik.com.

Conference Call and Webcast

Kinetik will host its second quarter 2024 results conference call on Thursday, August 8, 2024 at 8:00 am Central Daylight Time (9:00 am Eastern Daylight Time) to discuss second quarter results. To access a live webcast of the conference call, please visit the Investors section of Kinetik's website at 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 business strategy and 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.

1. A non-GAAP financial measure. See "Non-GAAP Financial Measures" and "Reconciliation of GAAP to Non-GAAP Measures" for further details.

2. Net of contributions in aid of construction and returns of invested capital from unconsolidated affiliates.

3. 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 EBITDA Adjustments for Qualified Projects, Acquisitions and Divestitures.

4. Net Debt to Adjusted EBITDA Ratio is defined as Net Debt divided by last twelve months Adjusted EBITDA.

5. Net income including noncontrolling interest for the three and six months ended June 30, 2023 was $71.7 million and $76.0 million, respectively.

6. Dividend Coverage Ratio is Distributable Cash Flow divided by total declared dividends.

7. Issued and outstanding shares of 157,518,898 is the sum of 59,735,864 shares of Class A common stock and 97,783,034 shares of Class C common stock. Excludes 7,680,492 shares of Class C common stock to be issued on July 1, 2025 in connection with the Durango Permian acquisition.

8. Net Debt is defined as total current and long-term debt, excluding deferred financing costs, less cash and cash equivalents.

KINETIK HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
		(In thousands, except per share data)
Operating revenues:
Service revenue		$	96,415			$	102,551			$	198,610			$	205,976
Product revenue			260,102				191,430				496,669				365,254
Other revenue			2,940				2,222				5,572				6,013
Total operating revenues			359,457				296,203				700,851				577,243
Operating costs and expenses:
Costs of sales (exclusive of depreciation and amortization shown separately below) (1)			146,513				110,467				300,200				226,344
Operating expenses			44,068				39,906				87,474				75,879
Ad valorem taxes			6,212				3,889				12,504				9,347
General and administrative expenses			31,091				22,869				65,227				50,380
Depreciation and amortization expenses			75,061				69,482				148,667				138,336
(Gain) loss on disposal of assets			(76	)			12,137				4,090				12,239
Total operating costs and expenses			302,869				258,750				618,162				512,525
Operating income			56,588				37,453				82,689				64,718
Other income (expense):
Interest and other income			309				1,042				400				1,336
Loss on debt extinguishment			(525	)			-				(525	)			-
Gain on sale of equity method investment			59,884				-				59,884				-
Interest expense			(54,049	)			(16,126	)			(101,516	)			(85,434	)
Equity in earnings of unconsolidated affiliates			55,955				49,610				116,424				96,074
Total other income, net			61,574				34,526				74,667				11,976
Income before income taxes			118,162				71,979				157,356				76,694
Income tax expense			9,214				311				13,001				727
Net income including noncontrolling interest			108,948				71,668				144,355				75,967
Net income attributable to Common Unit limited partners			71,756				46,654				95,613				49,517
Net income attributable to Class A Common Stock Shareholders		$	37,192			$	25,014			$	48,742			$	26,450
Net income attributable to Class A Common Shareholders, per share
Basic		$	0.54			$	0.41			$	0.68			$	0.36
Diluted		$	0.54			$	0.41			$	0.67			$	0.36
Weighted-average shares
Basic			59,792				50,553				58,840				48,980
Diluted			60,279				50,625				59,503				49,220

⁽¹⁾ Cost of sales (exclusive of depreciation and amortization) is net of gas service revenues totaling $54.7 million and $38.1 million for the three months ended June 30, 2024 and 2023, respectively, and $99.2 million and $68.5 million for the six months ended June 30, 2024 and 2023, respectively, for certain volumes, where we act as principal.

KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023(1)
		(In thousands)
Net Income Including Noncontrolling Interests to Adjusted EBITDA
Net income including noncontrolling interests (GAAP)		$	108,948			$	71,668			$	144,355			$	75,967
Add back:
Interest expense			54,049				16,126				101,516				85,434
Income tax expense			9,214				311				13,001				727
Depreciation and amortization			75,061				69,482				148,667				138,336
Amortization of contract costs			1,655				1,655				3,310				3,310
Proportionate EBITDA from unconsolidated affiliates			85,922				74,481				174,324				146,348
Share-based compensation			15,136				13,299				37,697				30,839
(Gain) loss on disposal of assets			(76	)			12,137				4,090				12,239
Loss on debt extinguishment			525				-				525				-
Unrealized hedging loss			-				-				6,883				-
Integration costs			2,510				41				2,551				953
Acquisition transaction costs			3,232				2				3,232				270
Other one-time costs or amortization			2,581				1,104				5,006				4,864
Deduct:
Interest income			310				-				887				-
Warrant valuation adjustment			-				33				-				77
Gain on sale of equity method investment			59,884				-				59,884				-
Unrealized hedging gain			8,205				2,678				-				7,643
Equity income from unconsolidated affiliates			55,955				49,610				116,424				96,074
Adjusted EBITDA(1) (non-GAAP)		$	234,403			$	207,985			$	467,962			$	395,493
Distributable Cash Flow(2)
Adjusted EBITDA (non-GAAP)		$	234,403			$	207,985			$	467,962			$	395,493
Proportionate EBITDA from unconsolidated affiliates			(85,922	)			(74,481	)			(174,324	)			(146,348	)
Returns on invested capital from unconsolidated affiliates			75,429				68,466				152,642				136,230
Interest expense			(54,049	)			(16,126	)			(101,516	)			(85,434	)
Unrealized gain on interest rate derivatives			(189	)			(36,835	)			(9,566	)			(19,646	)
Maintenance capital expenditures			(6,780	)			(5,002	)			(17,780	)			(9,562	)
Distributable cash flow (non-GAAP)		$	162,892			$	144,007			$	317,418			$	270,733
Free Cash Flow(3)
Distributable cash flow (non-GAAP)		$	162,892			$	144,007			$	317,418			$	270,733
Cash interest adjustment			(29,144	)			(35,705	)			(29,395	)			(20,331	)
Realized gain on interest rate swaps			3,953				2,417				7,905				2,417
Growth capital expenditures			(32,160	)			(98,644	)			(80,413	)			(161,908	)
Capitalized interest			(986	)			(4,811	)			(1,930	)			(7,044	)
Investments in unconsolidated affiliates			-				(93,112	)			(3,273	)			(150,331	)
Returns of invested capital from unconsolidated affiliates			-				-				1,240				5,793
Contributions in aid of construction			894				6,203				1,408				6,872
Free cash flow (non-GAAP)		$	105,449			$	(79,645	)		$	212,960			$	(53,799	)

KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES (CONTINUED)
		Six Months Ended June 30,
		2024				2023
		(In thousands)
Reconciliation of net cash provided by operating activities to Adjusted EBITDA
Net cash provided by operating activities		$	279,222			$	231,047
Net changes in operating assets and liabilities			49,046				47,040
Interest expense			101,516				85,434
Amortization of deferred financing costs			(3,582	)			(3,055	)
Current income tax expense			610				124
Returns on invested capital from unconsolidated affiliates			(152,642	)			(136,230	)
Proportionate EBITDA from unconsolidated affiliates			174,324				146,348
Derivative fair value adjustment and settlement			2,683				26,341
Unrealized hedging loss (gain)			6,883				(7,643	)
Interest income			(887	)			-
Integration costs			2,551				953
Transaction costs			3,232				270
Other one-time cost or amortization			5,006				4,864
Adjusted EBITDA(1) (non-GAAP)		$	467,962			$	395,493
Distributable Cash Flow(2)
Adjusted EBITDA (non-GAAP)		$	467,962			$	395,493
Proportionate EBITDA from unconsolidated affiliates			(174,324	)			(146,348	)
Returns on invested capital from unconsolidated affiliates			152,642				136,230
Interest expense			(101,516	)			(85,434	)
Unrealized gain on interest rate derivatives			(9,566	)			(19,646	)
Maintenance capital expenditures			(17,780	)			(9,562	)
Distributable cash flow (non-GAAP)		$	317,418			$	270,733
Free Cash Flow(3)
Distributable cash flow (non-GAAP)		$	317,418			$	270,733
Cash interest adjustment			(29,395	)			(20,331	)
Realized gain on interest rate swaps			7,905				2,417
Growth capital expenditures			(80,413	)			(161,908	)
Capitalized interest			(1,930	)			(7,044	)
Investments in unconsolidated affiliates			(3,273	)			(150,331	)
Returns of invested capital from unconsolidated affiliates			1,240				5,793
Contributions in aid of construction			1,408				6,872
Free cash flow (non-GAAP)		$	212,960			$	(53,799	)

KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES (CONTINUED)
	June 30,			March 31,
	2024			2024
	(In thousands)
Net Debt(4)
Short-term debt	$	148,800		$	-
Long-term debt, net		3,258,403			3,517,115
Plus: Debt issuance costs, net		28,597			29,885
Total debt		3,435,800			3,547,000
Less: Cash and cash equivalents		12,549			9,756
Net debt (non-GAAP)	$	3,423,251		$	3,537,244

(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 current and long-term debt, excluding deferred financing costs, premiums and discounts, 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.

Contacts

Kinetik Investors:
[phone] Maddie Wagner
[phone] Alex Durkee
Website: www.kinetik.com