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Equitrans Midstream Announces First Quarter 2021 Results

CANONSBURG, Pa.--(BUSINESS WIRE)--#ETRN--Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the first quarter 2021. Included in the "Non-GAAP Disclosures" section of this news release are important disclosures regarding the use of non-GAAP supplemental financial measures, including information regarding their most comparable GAAP financial measure.


Q1 2021 Highlights:

  • Delivered first quarter 2021 results ahead of guidance
  • Raised full-year 2021 adjusted EBITDA and free cash flow guidance
  • Generated $77 million of net income and achieved $308 million of adjusted EBITDA
  • Recorded 66% of total operating revenue from firm reservation fees

"As we continue to enhance our ESG platform, Equitrans has initiated measurable actions to advance diversity and inclusion in the workplace," said Thomas F. Karam, ETRN chairman and chief executive officer. "To reinforce our collective commitment, I have recently signed the CEO Pledge offered by the CEO Action for Diversity and Inclusion Coalition. We believe diverse perspectives lead to growth, improvement, and innovation, building stronger teams and delivering more opportunities to achieve and maintain long-term success."

"We were ahead of our forecast for the first quarter, with strong results in multiple areas including gathered volume, seasonal park and loan activity, and delivered water volume," said Diana M. Charletta, ETRN president and chief operating officer. "With this encouraging and positive start to the year, we are confident in our outlook for the remainder of 2021 and have increased our full-year financial guidance."

FIRST QUARTER 2021 SUMMARY RESULTS

$ millions (except per share metrics)

 

Net income attributable to ETRN common shareholders

$

58.1

 

Adjusted net income attributable to ETRN common shareholders

$

83.0

 

Earnings per diluted share attributable to ETRN common shareholders

$

0.13

 

Adjusted earnings per diluted share attributable to ETRN common shareholders

$

0.19

 

Net income

$

76.6

 

Adjusted EBITDA

$

308.2

 

Deferred revenue

$

72.0

 

Net cash provided by operating activities

$

229.6

 

Free cash flow

$

109.6

 

Retained free cash flow

$

44.7

 

Net income attributable to ETRN common shareholders for the first quarter 2021 was impacted by a $7.1 million unrealized gain on derivative instruments. The unrealized gain is reported within other income and relates to the contractual agreement with EQT Corporation (EQT) in which ETRN will receive cash from EQT conditioned on the quarterly average of certain Henry Hub natural gas prices exceeding certain thresholds during the three years following the Mountain Valley Pipeline's (MVP) in-service, but in no case extending beyond December 2024. The contract is accounted for as a derivative with the fair value marked-to-market at each quarter-end. Net income attributable to ETRN common shareholders for the first quarter 2021 was also impacted by a $41.0 million loss on extinguishment of debt primarily related to the purchase in a tender offer in January 2021 of $500 million in aggregate principal amount of outstanding EQM Midstream Partners, LP (EQM) 4.75% senior notes due 2023.

As a result of the gathering agreement with EQT entered into in February 2020, 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 first quarter 2021, deferred revenue was $72.0 million.

Operating revenue for the first quarter was lower compared to the same quarter last year by $73.1 million, primarily from the impact of deferred revenue and lower water services revenue. The reduction in operating revenue was partially offset by increased revenue from higher gathering MVCs and higher park and loan activity. Operating expenses decreased by $56.6 million compared to the first quarter 2020, primarily as a result of a $55.6 million impairment of long-lived assets in the first quarter 2020. Additionally, operating and maintenance expense decreased versus the prior year quarter while selling, general and administrative and depreciation expense increased.

QUARTERLY DIVIDEND

For the first quarter 2021, ETRN will pay a quarterly cash dividend of $0.15 per common share on May 14, 2021 to ETRN common shareholders of record at the close of business on May 5, 2021.

TOTAL CAPITAL EXPENDITURES AND CAPITAL CONTRIBUTIONS

$ millions

 

Three Months Ended
March 31, 2021

 

Full-Year 2021
Forecast

MVP

 

$9

 

$265 - $315

Gathering(1)

 

$48

 

$265 - $295

Transmission(2)

 

$5

 

$40 - $60

Water

 

$5

 

$20

Total

 

$67

 

$590 - $690

(1) Excludes $1.7 million of capital expenditures related to noncontrolling interests in Eureka Midstream Holdings, LLC (Eureka) for the three months ended March 31, 2021. Full-year 2021 forecast excludes approximately $20 million of capital expenditures related to the noncontrolling interests in Eureka. Includes $1 million of headquarters capital expenditures.

(2) Includes capital contributions to Mountain Valley Pipeline, LLC (MVP JV) for the MVP Southgate project.

OUTLOOK

$ millions

Q2 2021

Net income

$55 - $75

Adjusted EBITDA

$245 - $265

Deferred revenue

$75

$ millions

Full-Year 2021

Net income

$270 - $340

Adjusted EBITDA

$1,050 - $1,120

Deferred revenue

$296

Free cash flow

$265 - $335

Retained free cash flow

$5 - $75

BUSINESS AND PROJECT UPDATES

Outstanding Debt and Liquidity

As of March 31, 2021, ETRN reported $6.4 billion of consolidated long-term debt; $485 million of borrowings and $246 million of letters of credit outstanding under EQM's revolving credit facility; and $232 million of cash.

On April 16, 2021, EQM entered into an amendment to its revolving credit facility which, among other things, reduced the revolver size from $3.0 billion to $2.25 billion. The new revolver size is expected to provide better alignment with future business and liquidity needs.

Bond Offering and Tender

In January 2021, ETRN's wholly owned subsidiary, EQM, issued $800 million of 4.50% senior unsecured notes due 2029 and $1,100 million of 4.75% senior unsecured notes due 2031. Net proceeds from the offering and cash on hand were used to repay EQM's $1.4 billion term loan and to purchase, in a tender offer, $500 million in aggregate principal amount of outstanding EQM 4.75% senior notes due 2023.

Mountain Valley Pipeline

In February 2021, MVP JV requested revocation of its Nationwide Permit 12, previously issued by the U.S. Army Corps of Engineers (Army Corps), and initiated an alternative permitting process with the Army Corps and the Federal Energy Regulatory Commission (FERC) related to the project’s remaining waterbody and wetland crossings. MVP JV has submitted an individual permit application to the Army Corps, as well as related applications for 401 water quality certifications to West Virginia and Virginia, for approximately 300 crossings. Additionally, MVP JV submitted a Certificate Amendment application to the FERC, requesting a change to utilize the boring method for approximately 120 crossings.

In March and April 2021, respectively, the Virginia Department of Environmental Quality and the West Virginia Department of Environmental Protection submitted requests to the Army Corps seeking to extend the 120-day review period to evaluate the respective 401 water quality certification applications. ETRN expects and supports that some additional review time will be granted. Accordingly, ETRN no longer expects that MVP JV will have the necessary waterbody and wetland crossing approvals by Q3 2021. MVP JV is now incorporating the winter 2021/2022 season into its project schedule and, as a result, is targeting a full in-service date during the summer of 2022 at a total project cost of approximately $6.2 billion. As of March 31, 2021, ETRN funded approximately $2.3 billion and, based on the total project cost estimate, expects to fund a total of approximately $3.1 billion and to have an approximate 47.8% ownership interest in MVP. ETRN will operate the pipeline.

MVP Southgate

Based on the adjustment to MVP's targeted full in-service date and current expectations regarding timing of MVP Southgate permit approvals, ETRN is targeting commencing construction during 2022 and placing the project in-service during the spring of 2023. The approximately 75-mile pipeline is designed to receive gas from MVP in Virginia for transport 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.

Water Services

Water operating income was $4.5 million and water EBITDA was $12.7 million in the first quarter 2021. Water operating loss is forecast to be approximately $8 million for the full-year 2021 and water EBITDA is forecast to be approximately $25 million for the full-year 2021.

Q1 2021 Earnings Conference Call Information

ETRN will host a conference call with security analysts today, May 4, 2021, at 10:30 a.m. (ET) to discuss first quarter 2021 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: 2864556.

ETRN management speaks to investors from time-to-time and the presentation for these discussions, which is updated periodically, is available via www.equitransmidstream.com.

NON-GAAP DISCLOSURES

Adjusted Net Income Attributable to ETRN Common Shareholders and Adjusted Earnings per Diluted Share Attributable to ETRN Common Shareholders

Adjusted 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, as applicable, the premium on redemption of a portion of EQM’s Series A Perpetual Convertible Preferred Units (EQM Series A Preferred Units), transaction costs, impairments of long-lived assets, unrealized gain (loss) on derivative instruments and loss on extinguishment of debt, which items affect the comparability of results period to period. The impact of noncontrolling 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 March 31, 2021.

Reconciliation of Adjusted Net Income Attributable to ETRN Common Shareholders and Adjusted
Earnings per Diluted Share Attributable to ETRN Common Shareholders

 

Three Months Ended March 31,

(Thousands, except per share information)

2021

 

2020

Net income attributable to ETRN common shareholders

$

58,055

 

 

$

69,732

 

Add back / (deduct):

 

 

 

Transaction costs

 

 

11,360

 

Impairments of long-lived assets

 

 

55,581

 

Unrealized gain on derivative instruments

(7,135)

 

 

(4,170)

 

Loss on extinguishment of debt

41,025

 

 

24,864

 

Noncontrolling interest impact of non-GAAP items

 

 

(22,267)

 

Tax impact of non-GAAP items(1)

(8,896)

 

 

(17,190)

 

Adjusted net income attributable to ETRN common shareholders

$

83,049

 

 

$

117,910

 

Diluted weighted average common shares outstanding

433,158

 

 

248,591

 

Adjusted earnings per diluted share attributable to ETRN common shareholders(2)

$

0.19

 

 

$

0.46

 

(1) The adjustments were tax effected at the Company’s federal and state statutory tax rate for each period.

(2) The three months ended March 31, 2020 includes the impact of using the if-converted method to calculate the dilutive effect of the Series A Preferred Units.

Adjusted EBITDA

As used in this news release, Adjusted EBITDA means, as applicable, net income, plus income tax expense, net interest expense, loss on extinguishment of debt, depreciation, amortization of intangible assets, impairments of long-lived assets, payments on the preferred interest in EQT Energy Supply, LLC (Preferred Interest), non-cash long-term compensation expense (income), and transaction costs, less equity income, AFUDC-equity, unrealized gain (loss) on derivative instruments and adjusted EBITDA attributable to noncontrolling interest.

The table below reconciles adjusted EBITDA with net income 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 March 31, 2021.

Reconciliation of Adjusted EBITDA

 

Three Months Ended March 31,

(Thousands)

2021

 

2020

Net income

$

76,597

 

 

$

189,560

 

Add:

 

 

 

Income tax expense

20,416

 

 

19,139

 

Net interest expense

95,144

 

 

66,754

 

Loss on extinguishment of debt

41,025

 

 

24,864

 

Depreciation

68,618

 

 

61,348

 

Amortization of intangible assets

16,205

 

 

14,581

 

Impairments of long-lived assets

 

 

55,581

 

Preferred Interest payments

2,746

 

 

2,764

 

Non-cash long-term compensation expense

4,445

 

 

4,544

 

Transaction costs

 

 

11,360

 

Less:

 

 

 

Equity income

(3)

 

 

(54,072)

 

AFUDC – equity

(118)

 

 

(236)

 

Unrealized gain on derivative instruments

(7,135)

 

 

(4,170)

 

Adjusted EBITDA attributable to noncontrolling interest(1)

(9,692)

 

 

(8,515)

 

Adjusted EBITDA

$

308,248

 

 

$

383,502

 

(1) Reflects adjusted EBITDA attributable to noncontrolling interest associated with the third-party ownership interest in Eureka. Adjusted EBITDA attributable to noncontrolling interest for the three months ended March 31, 2021 was calculated as net income of $3.9 million plus depreciation of $3.0 million, plus amortization of intangible assets of $2.1 million and plus interest expense of $0.7 million. Adjusted EBITDA attributable to noncontrolling interest for the three months ended March 31, 2020 was calculated as net income of $3.6 million, plus depreciation of $2.7 million, plus amortization of intangible assets of $1.2 million, and plus interest expense of $1.0 million.

Free Cash Flow

As used in this news release, free cash flow means net cash provided by operating activities plus principal payments received on the Preferred Interest, and less net cash provided by operating activities attributable to noncontrolling interest, premiums paid on debt extinguishment, capital expenditures (excluding the noncontrolling interest share (40%) of Eureka capital expenditures), capital contributions to MVP JV, and distributions/dividends and redemption amounts paid to Series A Preferred unitholders/shareholders (as applicable).

Retained Free Cash Flow

As used in this news release, retained free cash flow means free cash flow less dividends paid to common shareholders and distributions paid to noncontrolling interest EQM common unitholders (as applicable).

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 March 31, 2021.

Reconciliation of Free Cash Flow and Retained Free Cash Flow

 

Three Months Ended March 31,

(Thousands)

2021

 

2020

Net cash provided by operating activities

$

229,552

 

 

$

249,303

 

Add back / (deduct):

 

 

 

Principal payments received on the Preferred Interest

1,277

 

 

1,225

 

Net cash provided by operating activities attributable to noncontrolling interest(1)

(1,037)

 

 

(9,245)

 

ETRN Series A Preferred Shares dividends(2)

(14,628)

 

 

 

EQM Series A Preferred Unit distributions(3)

 

 

(25,501)

 

Premiums paid on debt extinguishment

(36,250)

 

 

 

Capital expenditures(4)(5)

(58,580)

 

 

(139,394)

 

Capital contributions to MVP JV

(10,723)

 

 

(45,150)

 

Free cash flow

$

109,611

 

 

$

31,238

 

Less:

 

 

 

Dividends paid to common shareholders (6)

(64,871)

 

 

(114,254)

 

Distributions paid to noncontrolling interest EQM common unitholders

 

 

(96,526)

 

Retained free cash flow

$

44,740

 

 

$

(179,542)

 

(1) Reflects 40% of $2.6 million and $23.1 million, which was Eureka’s standalone net cash provided by operating activities for the three months ended March 31, 2021 and 2020, respectively, which represents the noncontrolling interest portion for the three months ended March 31, 2021 and 2020, respectively.

(2) Reflects cash dividends paid of $0.4873 per ETRN Series A Perpetual Convertible Preferred Share.

(3) Reflects cash distributions paid of $1.0364 per EQM Series A Preferred Unit.

(4) Does not reflect amounts related to the noncontrolling 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) Fourth quarter 2020 dividend of $0.15 per ETRN common share was paid during the first quarter 2021.

Adjusted EBITDA, free cash flow and retained free cash flow are non-GAAP supplemental financial measures that management and external users of ETRN's consolidated financial statements, such as industry analysts, investors, lenders, and rating agencies, may use to assess:

  • 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 believes that adjusted EBITDA, free cash flow, and retained free cash flow provide useful information to investors in assessing ETRN's financial condition and results of operations. Adjusted EBITDA, free cash flow, and retained free cash flow should not be considered as alternatives to net income, operating income, net cash provided by operating activities, as applicable, or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA, free cash flow, and retained free cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect net income, operating income and net cash provided by operating activities. Additionally, because these non-GAAP metrics may be defined differently by other companies in ETRN's industry, ETRN's definitions of adjusted EBITDA, free cash flow, and retained free cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing the utility of the measures. Free cash flow and retained free cash flow should not be viewed as indicative of the actual amount of cash that ETRN has available for dividends or that ETRN plans to distribute and are not intended to be liquidity measures.

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 free 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 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.


Contacts

Analyst inquiries:
Nate Tetlow – Vice President, Corporate Development and Investor Relations
412-553-5834
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Media inquiries:
Natalie Cox – Communications and Corporate Affairs
412-395-3941
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