CANONSBURG, Pa.--(BUSINESS WIRE)--Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the second quarter 2020.
Q2 2020 Highlights:
- Generated $344 million of net cash provided by operating activities
- Achieved $155 million of free cash flow and $88 million of retained free cash flow
- Recorded 72% of total operating revenue from firm reservation fees
- Raised full-year 2020 estimated adjusted EBITDA and cash flow guidance
“This quarter begins to show the benefits of our recent transformative actions and the financial discipline necessary to operate in these uncertain times," said Thomas F. Karam, ETRN chairman and chief executive officer. "First, we executed the last component of our corporate simplification plan with the closing of the EQM merger. And second, we successfully raised $1.6 billion of senior notes, ensuring ample liquidity to support our capital investment plan. Our financial policy is designed to control our capital in order to de-lever quickly and generate substantial free cash flow."
“We are very pleased with the recent legal and regulatory progress made on MVP and look forward to getting shovels back in the ground on this important project," added Diana M. Charletta, ETRN president and chief operating officer. "MVP plays a critical role in meeting the growing demand for reliable, affordable, and clean-burning natural gas in the mid-Atlantic and southeastern United States. We appreciate the oversight of the various state and federal agencies that have helped guide our construction activities and expect to complete the roughly 8% remaining total project work by early 2021."
See "Non-GAAP Disclosures" for important disclosures regarding the use of non-GAAP supplemental financial measures included in this news release, including information regarding their most comparable GAAP financial measure.
SECOND QUARTER 2020 SUMMARY RESULTS
| $ millions (except per share metrics) | ||
| Net income attributable to ETRN common shareholders | $ | 27.0 |
| Adjusted net income attributable to ETRN common shareholders | $ | 56.8 |
| Earnings per diluted share attributable to ETRN common shareholders | $ | 0.10 |
| Adjusted earnings per diluted share attributable to ETRN common shareholders | $ | 0.22 |
| Net income | $ | 143.5 |
| Adjusted EBITDA | $ | 263.2 |
| Deferred revenue | $ | 74.2 |
| Net cash provided by operating activities | $ | 343.7 |
| Free cash flow | $ | 154.9 |
| Retained free cash flow | $ | 88.3 |
As a result of the gathering agreement with EQT, entered into in February 2020 and beginning with the second quarter 2020 results, revenue from the contracted minimum volume commitment (MVC) is recognized utilizing an average rate applied over the 15-year contract life. The difference between the cash received from the contracted MVC and the revenue recognized results in the deferral of revenue into future periods. In the second quarter 2020, deferred revenue was $74.2 million.
Operating revenue for the second quarter was lower compared to the same quarter last year by $65.6 million, primarily from the impact of deferred revenue in the second quarter 2020 and partially offset by increased revenue from higher MVCs on gathering and water. Second quarter 2020 operating revenue was also impacted by a temporary production curtailment from ETRN's largest customer that averaged approximately 1.2 Bcf per day for 45 days in the quarter. Operating expenses decreased by $74.7 million compared to the second quarter 2019. The decrease was driven primarily by an $80.1 million impairment of long-lived assets in the second quarter of 2019.
QUARTERLY DIVIDENDFor the second quarter 2020, ETRN will pay a quarterly cash dividend of $0.15 per share on August 13, 2020 to ETRN common shareholders of record at the close of business on August 4, 2020.
TOTAL CAPITAL EXPENDITURES AND CAPITAL CONTRIBUTIONS
| $MM | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | Full-Year 2020 Forecast |
| MVP | $33 | $78 | $570 - $610 |
| Gathering(1) | $90 | $189 | $340 - $360 |
| Transmission(2) | $16 | $26 | $65 - $85 |
| Water | $2 | $6 | $15 |
| Headquarters | $1 | $3 | $5 |
| Total | $142 | $302 | $995 - $1,075 |
| Note: In Q2 2020, in connection with the EQM merger, ETRN discontinued reporting ongoing maintenance capital expenditures. Ongoing maintenance capital expenditures are now reflected within the total capital expenditures and capital contributions table. | |||
| (1) | Excludes $11.1 million and $23.6 million of capital expenditures related to non-controlling interests in Eureka Midstream Holdings, LLC (Eureka) for the three and six months ended June 30, 2020, respectively. | ||
| (2) | Includes capital contributions to Mountain Valley Pipeline, LLC (MVP JV) for the MVP Southgate project. | ||
| $ millions | Q3 2020 |
| Net income attributable to ETRN | $125 - $145 |
| Adjusted EBITDA | $250 - $275 |
| Deferred revenue | $75 |
| $ millions | Full-year 2020 |
| Net income attributable to ETRN | $405 - $445 |
| Adjusted EBITDA | $1,170 - $1,220 |
| Deferred revenue | $227 |
| Free cash flow | $0 - $50 |
| Retained free cash flow | $(410) - $(360) |
BUSINESS AND PROJECT UPDATES
ETRN Acquisition of EQM and EQM Series A Preferred UnitsOn June 17, 2020, ETRN completed the share-for-unit merger with EQM, in which each outstanding public common unit of EQM was converted into 2.44 shares of ETRN common stock. As of June 30, 2020, ETRN had approximately 432 million shares outstanding.In connection with the closing of the acquisition of EQM, EQM repurchased $600 million of its Series A Preferred Units. The remaining $600 million of EQM Series A Preferred Units were exchanged for $600 million of newly issued Series A Perpetual Convertible Preferred Shares of ETRN.Bond OfferingOn June 18, 2020, EQM completed its issuance of $700 million of 6.0% senior unsecured notes due 2025 and $900 million of 6.5% senior unsecured notes due 2027. Proceeds from the offering were used to repay outstanding borrowings under the $3 billion EQM revolving credit facility and for general partnership purposes.
Outstanding Debt and LiquidityAs of June 30, 2020, ETRN reported $6.4 billion of consolidated long-term debt; $485 million of borrowings and $235 million of letters of credit outstanding under the $3 billion revolving credit facility; and $202.3 million of cash.
Water ServicesWater operating income was $12.3 million and water EBITDA was $19.8 million in the second quarter 2020. Water EBITDA is forecast to be approximately $70 - $75 million for the full-year 2020.
Volume Curtailment UpdateSecond quarter 2020 gathered volumes and revenue were impacted from temporary production curtailments by ETRN's largest customer. The curtailed volumes averaged approximately 1.2 Bcf per day over 45 days during the second quarter. In July, the curtailed volumes were brought back online in a phased approach over several weeks.
Mountain Valley PipelineOn June 15, 2020, the Supreme Court of the United States reversed a lower court decision regarding the U.S. Forest Service's authority to grant a right-of-way to cross the Appalachian Trail. The positive ruling clears the path for MVP's Appalachian Trail crossing. MVP JV expects a new Biological Opinion to be issued shortly, with certain forward construction activities resuming upon approval from the U.S. Federal Energy Regulatory Commission (FERC). Following the Biological Opinion, MVP JV expects to receive the Nationwide Permit 12 from the U.S. Army Corps of Engineers, which combined with FERC approval, will allow water body crossing activities to resume.
MVP JV is targeting an early 2021 full in-service date for the project. Based on the project's current $5.4 billion budget, ETRN expects to fund approximately $2.7 billion of the total project cost and, through June 30, 2020, has funded approximately $2.1 billion. In order to adapt the construction plan for potential complex judicial decisions and regulatory changes, total project costs may potentially increase by approximately 5%. ETRN expects that it may be required to fund approximately $175 million related to the potential increase in project costs.
MVP SouthgateOn June 18, 2020, the FERC issued the Certificate of Public Convenience and Necessity for the MVP Southgate project. Project construction is expected to begin in 2021, upon receiving all necessary permits and authorizations, and MVP Southgate is targeted to enter service in 2021. The approximately 75-mile pipeline is expected to receive gas from MVP in Virginia and transport the gas to new delivery points in Rockingham and Alamance Counties, North Carolina. With a total project cost estimate of approximately $450 million to $500 million, MVP Southgate is backed by a 300 MMcf per day firm capacity commitment from Dominion Energy North Carolina and, as designed, the pipeline has expansion capabilities that could provide up to 900 MMcf per day of total capacity. ETRN has a 47.2% ownership interest in MVP Southgate and will operate the pipeline.
Hammerhead PipelineDuring the second quarter 2020, a portion of the Hammerhead pipeline became operational for interruptible service. Hammerhead is a 64-mile gathering header pipeline designed to primarily deliver Marcellus gas from southwestern Pennsylvania to MVP. Hammerhead has 1.6 Bcf per day of capacity, of which 1.2 Bcf per day is contracted under a 20-year firm capacity commitment. Upon MVP in-service the firm capacity commitment on Hammerhead will commence.
Sustainability ReportOn July 29, 2020, ETRN published its first annual corporate sustainability report, which was produced in accordance with the Global Reporting Initiative (GRI) core reporting option and also incorporated the Sustainability Accounting Standards Board (SASB) Oil & Gas Midstream Standards. The report includes information and data for the first full year of standalone operations as ETRN and reflects the results of the Company's materiality assessment to identify the Environmental, Social, and Governance (ESG) topics most significant to ETRN’s business and stakeholders. The report can be viewed online at: https://csr.equitransmidstream.com
Q2 2020 Earnings Conference Call InformationETRN will host a conference call with security analysts today, August 4, 2020, at 10:30 a.m. (ET) to discuss second quarter 2020 financial results, operating results, and other business matters.
Call Access: All participants must pre-register online, in advance of the call. Upon completion, registered participants will receive a confirmation email that includes instructions for accessing the call, as well as a unique registration ID and passcode. Please pre-register using the appropriate online registration links below:
Security Analysts :: Audio Registration
Your email confirmation will contain dial-in information, along with your unique ID and passcode.
All Other Participants :: Webcast Registration
Your email confirmation will contain the webcast link, along with your unique ID and passcode.
Call Replay: For 14 days following the call, an audio replay will be available at (800) 585-8367 or (416) 621-4642. The ETRN conference ID: 8447957.
ETRN management speak to investors from time-to-time and the presentation for these discussions, which is updated periodically, is available via www.equitransmidstream.com.
NON-GAAP DISCLOSURESAdjusted Net Income Attributable to ETRN common shareholders and Adjusted Earnings per Diluted Share Attributable to ETRN common shareholdersAdjusted net income attributable to ETRN common shareholders and adjusted earnings per diluted share attributable to ETRN common shareholders are non-GAAP supplemental financial measures that management and external users of ETRN’s consolidated financial statements, such as investors, may use to make period-to-period comparisons of earnings trends. Management believes that adjusted net income attributable to ETRN common shareholders and adjusted earnings per diluted share attributable to ETRN common shareholders as presented provide useful information for investors for evaluating period-over-period earnings. Adjusted net income attributable to ETRN common shareholders and adjusted earnings per diluted share attributable to ETRN common shareholders should not be considered as alternatives to net income attributable to ETRN common shareholders, earnings per diluted share attributable to ETRN common shareholders or any other measure of financial performance presented in accordance with GAAP. Adjusted net income attributable to ETRN common shareholders and adjusted earnings per diluted share attributable to ETRN common shareholders as presented have important limitations as analytical tools because they exclude some, but not all, items that affect net income attributable to ETRN common shareholders and earnings per diluted share attributable to ETRN common shareholders, including the premium on redemption of a portion of EQM Series A Preferred Units, separation and other transaction costs, impairments of long-lived assets, changes in the fair value of derivative instruments and loss on early extinguishment of debt, which items affect the comparability of results period to period. The impact of non-controlling interests is also excluded from the calculations of adjustment items to adjusted net income attributable to ETRN common shareholders, as is the tax impact of non-GAAP items. Additionally, because these non-GAAP metrics may be defined differently by other companies in ETRN's industry, ETRN's definitions of adjusted net income attributable to ETRN common shareholders and adjusted earnings per diluted share attributable to ETRN common shareholders may not be comparable to similarly titled measures of other companies, thereby diminishing the utility of the measures. Adjusted net income attributable to ETRN common shareholders and adjusted earnings per diluted share attributable to ETRN common shareholders should not be viewed as indicative of the actual amount of net income attributable to ETRN common shareholders or actual earnings of ETRN in any given period.
The table below reconciles adjusted net income attributable to ETRN common shareholders and adjusted earnings per diluted share attributable to ETRN common shareholders with net income attributable to ETRN common shareholders and earnings per diluted share attributable to ETRN common shareholders as derived from the statements of consolidated comprehensive income to be included in ETRN’s Quarterly Report on Form 10-Q for the three months ended June 30, 2020.
Reconciliation of Adjusted Net Income Attributable to ETRN common shareholders and Adjusted Earnings per Diluted Share Attributable to ETRN common shareholders
| Three Months Ended June 30, | ||||||||
| (Thousands, except per share information) | 2020 | 2019 | ||||||
| Net income attributable to ETRN common shareholders | $ | 26,990 | $ | 74,521 | ||||
| Add back / (deduct): | ||||||||
| Premium on redemption of EQM Series A Preferred Units | 27,253 | — | ||||||
| Separation and other transaction costs | 11,453 | 15,568 | ||||||
| Impairments of long-lived assets | — | 80,135 | ||||||
| Unrealized gain on derivative instruments | (12,554 | ) | — | |||||
| Noncontrolling interest impact of non-GAAP items | 4,559 | (52,358 | ) | |||||
| Tax impact of non-GAAP items(1) | (909 | ) | (11,399 | ) | ||||
| Adjusted net income attributable to ETRN common shareholders | $ | 56,792 | $ | 106,467 | ||||
| Diluted weighted average common shares outstanding | 260,883 | 254,967 | ||||||
| Adjusted earnings per diluted share attributable to ETRN common shareholders | $ | 0.22 | $ | 0.42 | ||||
| (1) | The adjustments were tax effected at the Company’s federal and state statutory tax rate for each period. |
Reconciliation of Adjusted EBITDA
| Three Months Ended June 30, | ||||||||
| (Thousands) | 2020 | 2019 | ||||||
| Net income | $ | 143,458 | $ | 130,480 | ||||
| Add: | ||||||||
| Income tax expense | 34,267 | 11,470 | ||||||
| Net interest expense | 66,795 | 61,713 | ||||||
| Depreciation | 63,151 | 56,759 | ||||||
| Amortization of intangible assets | 16,205 | 13,750 | ||||||
| Impairments of long-lived assets | — | 80,135 | ||||||
| Preferred Interest payments | 2,762 | 2,746 | ||||||
| Non-cash long-term compensation expense | 1,796 | 1,510 | ||||||
| Separation and other transaction costs | 11,453 | 15,568 | ||||||
| Less: | ||||||||
| Equity income | (56,244 | ) | (36,782 | ) | ||||
| AFUDC – equity | (246 | ) | (2,107 | ) | ||||
| Unrealized gain on derivative instruments | (12,554 | ) | — | |||||
| Adjusted EBITDA attributable to noncontrolling interest(1) | (7,692 | ) | (7,916 | ) | ||||
| Adjusted EBITDA | $ | 263,151 | $ | 327,326 | ||||
| (1) | Reflects adjusted EBITDA attributable to non-controlling interest associated with the third-party ownership interest in Eureka. Adjusted EBITDA attributable to non-controlling interest for the three months ended June 30, 2020 was calculated as net income of $2.3 million plus depreciation of $2.7 million, plus amortization of intangible assets of $2.1 million and plus interest expense of $0.6 million. Adjusted EBITDA attributable to non-controlling interest for the three months ended June 30, 2019 was calculated as net income of $4.0 million, plus depreciation of $2.2 million, plus amortization of intangible assets of $0.9 million and plus interest expense of $0.8 million. |
The table below reconciles free cash flow and retained free cash flow with net cash provided by operating activities as derived from the statements of consolidated cash flows to be included in ETRN's Quarterly Report on Form 10-Q for the three months ended June 30, 2020.
Reconciliation of Free Cash Flow and Retained Free Cash Flow
| Three Months Ended June 30, | ||||||||
| (Thousands) | 2020 | 2019 | ||||||
| Net cash provided by operating activities | $ | 343,697 | $ | 300,342 | ||||
| Add back / (deduct): | ||||||||
| Principal payments received on the Preferred Interest | 1,242 | 1,157 | ||||||
| Net cash provided by operating activities attributable to noncontrolling interest(1) | (6,561 | ) | (5,972 | ) | ||||
| EQM Series A Preferred Unit distributions(2) | (25,501 | ) | — | |||||
| Redemption of EQM Series A Preferred Units(3) | (17,338 | ) | — | |||||
| Capital expenditures(4)(5) | (107,115 | ) | (261,631 | ) | ||||
| Capital contributions to MVP JV | (33,484 | ) | (156,412 | ) | ||||
| Free cash flow | $ | 154,940 | $ | (122,516 | ) | |||
| Less: | ||||||||
| Dividends paid(6) | (34,399 | ) | (114,608 | ) | ||||
| Distributions paid to noncontrolling interest unitholders(6) | (32,244 | ) | (95,278 | ) | ||||
| Retained free cash flow | $ | 88,297 | $ | (332,402 | ) | |||
| (1) | Reflects 40% of $16.4 million and $14.9 million, or Eureka’s standalone net cash provided by operating activities, representing the non-controlling interest portion for the three months ended June 30, 2020 and 2019, respectively. |
| (2) | Reflects cash distribution paid of $1.0364 per EQM Series A Preferred Unit in the second quarter of 2020. |
| (3) | Redemption of EQM Series A Preferred Units for Q2 2020 included approximately $11 million for partial period distributions for the period 4/1/2020 through 6/17/2020 for the EQM Series A Preferred Units that were redeemed and an approximately $6 million change of control premium (101% of ~$600 MM of such units). |
| (4) | Does not reflect amounts related to the non-controlling interest share of Eureka. |
| (5) | ETRN accrues capital expenditures when the work has been completed but the associated bills have not yet been paid. Accrued capital expenditures are excluded from the statements of consolidated cash flows until they are paid. |
| (6) | Dividends paid and distributions paid to non-controlling interest unitholders during the second quarter 2020 were based on the first quarter 2020 dividend of $0.15 per ETRN common share and first quarter 2020 distributions of $0.3875 per EQM common unit. |
- ETRN’s operating performance as compared to other publicly traded companies in the midstream energy industry without regard to historical cost basis or, in the case of adjusted EBITDA, financing methods
- The ability of ETRN’s assets to generate sufficient cash flow to pay dividends to ETRN’s shareholders
- ETRN’s ability to incur and service debt and fund capital expenditures and capital contributions
- The viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities
ETRN is unable to provide a reconciliation of projected adjusted EBITDA from projected net income (loss), the most comparable financial measure calculated in accordance with GAAP, or a reconciliation of projected free cash flow or retained cash flow to net cash provided by operating activities, the most comparable financial measure calculated in accordance with GAAP. ETRN has not provided a reconciliation of projected adjusted EBITDA to projected net income (loss), the most comparable financial measure calculated in accordance with GAAP, due to the inherent difficulty and impracticability of predicting certain amounts required by GAAP with a reasonable degree of accuracy. Net income (loss) includes the impact of depreciation expense, income tax expense, the revenue impact of changes in the projected fair value of derivative instruments prior to settlement, potential changes in estimates for certain contract liabilities and unbilled revenues and certain other items that impact comparability between periods and the tax effect of such items, which may be significant and difficult to project with a reasonable degree of accuracy. Therefore, a reconciliation of projected adjusted EBITDA to projected net income (loss) is not available without unreasonable effort.
ETRN is unable to project net cash provided by operating activities because this metric includes the impact of changes in operating assets and liabilities related to the timing of cash receipts and disbursements that may not relate to the period in which the operating activities occurred. ETRN is unable to project these timing differences with any reasonable degree of accuracy to a specific day, three or more months in advance. Therefore, ETRN is unable to provide projected net cash provided by operating activities, or the related reconciliation of each of projected free cash flow and projected retained free cash flow to projected net cash provided by operating activities without unreasonable effort. ETRN provides a range for the forecasts of net income attributable to ETRN, adjusted EBITDA, free cash flow and retained free cash flow to allow for the inherent difficulty of predicting certain amounts and the variability in the timing of spending and the impact on the related reconciling items, many of which interplay with each other.
Water EBITDAAs used in this news release, water EBITDA means the earnings before interest, taxes, depreciation and amortization of ETRN’s water services business. Water EBITDA is a non-GAAP supplemental financial measure that management and external users of ETRN’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, use to assess the impact of ETRN’s water services business on ETRN’s operating performance and ETRN’s ability to incur and service debt and fund capital expenditures. Water EBITDA should not be considered as an alternative to ETRN’s net income, operating income or any other measure of financial performance presented in accordance with GAAP. Water EBITDA has important limitations as an analytical tool because the measure excludes some, but not all, items that affect net income and operating income. Additionally, because water EBITDA may be defined differently by other companies in ETRN’s industry, the definition of water EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing the utility of the measure. The table below reconciles water EBITDA from ETRN's water operating income as derived from ETRN's statements of consolidated comprehensive income to be included in ETRN's Quarterly Report on Form 10-Q for the three months ended June 30, 2020.
ETRN has not provided a reconciliation of projected water EBITDA from projected water operating income, the most comparable measure calculated in accordance with GAAP. ETRN does not allocate certain costs, such as interest expenses, to individual assets within its business segments. Therefore, the reconciliation of projected water EBITDA from projected water operating income is not available without unreasonable effort. ETRN has provided a range for the forecast of water EBITDA to allow for the variability in the timing of spending and the impact on the related reconciling items, many of which interplay with each other.
Reconciliation of Water EBITDA
| Three Months Ended June 30, | ||||||
| (Thousands) | 2020 | 2019 | ||||
| Water operating income | $ | 12,303 | $ | 10,072 | ||
| Add: Depreciation | 7,499 | 6,478 | ||||
| Water EBITDA | $ | 19,802 | $ | 16,550 | ||
About Equitrans Midstream Corporation:
Equitrans Midstream Corporation (ETRN) has a premier asset footprint in the Appalachian Basin and, as the parent company of EQM Midstream Partners, is one of the largest natural gas gatherers in the United States. Through its strategically located assets in the Marcellus and Utica regions, ETRN has an operational focus on gas transmission and storage systems, gas gathering systems, and water services that support natural gas development and production across the Basin. With a rich 135-year history in the energy industry, ETRN was launched as a standalone company in 2018 with the vision to be the premier midstream services provider in North America. ETRN is helping to meet America’s growing need for clean-burning energy, while also providing a rewarding workplace and enriching the communities where its employees live and work.
For more information on Equitrans Midstream Corporation, visit www.equitransmidstream.com;
