Antero Midstream Corp 10-K

Item 3. Legal Proceedings Our operations are subject to a variety of risks and disputes normally incident to our business. As a result, we may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. We maintain insurance policies with insurers in amounts and with coverage and deductibles that we, with the advice of our insurance advisors and brokers, believe are reasonable and prudent. We cannot, however, assure you that this insurance will be adequate to protect us from all material expenses related to potential future claims for personal and property damage or that these levels of insurance will be available in the future at economical prices. Veolia The Company is currently involved in a consolidated lawsuit with Veolia Water Technologies, Inc. (“Veolia”) and Veolia Water North America Operating Services, LLC (“Veolia North America”) relating to the Clearwater Facility. On March 13, 2020, Antero Treatment LLC (“Antero Treatment”), a wholly owned subsidiary of the Company, filed suit against Veolia and Veolia North America in the district court of Denver County, Colorado, asserting claims of fraud, breach of contract and other related claims. Antero Treatment alleges that Veolia failed to meet its contractual obligations to design and build a “turnkey” wastewater disposal facility under a Design/Build Agreement dated August 18, 2015 (the “DBA”), and that Veolia fraudulently concealed certain design flaws during contract negotiations and continued to conceal and fraudulently misrepresent the impact of certain design changes post-execution of the DBA. Antero Treatment is seeking damages from Veolia of at least $457 million, which represents the Company’s recorded impairment of the idled Clearwater Facility. In the alternative, Antero Treatment sought rescission of the DBA and restitution of, at a minimum, the $230 million out-of-pocket costs paid to Veolia pursuant to the DBA. Antero Treatment also asserts related claims against Veolia North America, including equitable claims with respect to certain amounts Antero paid to Veolia North America. On March 13, 2020, Veolia filed a separate suit against the Company, Antero Resources, and certain of the Company’s wholly owned subsidiaries (collectively, the “Antero Defendants”) in Denver County, Colorado. In its lawsuit, Veolia asserts breach of contract and equitable claims against the Antero Defendants for alleged failures under the DBA, including an allegation that the Antero Defendants improperly terminated the DBA to prevent Veolia from earning an approximate $26 million contract balance. The Antero Defendants vigorously deny Veolia’s claims. Veolia seeks money damages in an amount not yet specified. Veolia’s suit has been consolidated into the action filed by Antero Treatment. On April 17, 2020, Veolia, Veolia North America and the Antero Defendants each filed partial motions to dismiss directed at certain claims asserted by the opposing party. On July 23, 2020, the Court dismissed Veolia’s equitable claims against the Antero 36 ​ Table of Contents Defendants and Antero Treatment’s alternative claim for rescission against Veolia. All other claims remain part of the consolidated action. The case is set for trial beginning on November 29, 2021. Item 4. Mine Safety Disclosure s Not applicable. PART II Item 5. Marke t for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock We have one class of common equity outstanding, our common stock, par value $0.01 per share. Our common stock is listed on the New York Stock Exchange and traded under the symbol “AM.” On February 12, 2021, shares of our common stock were held by 49 holders of record. The number of holders does not include the holders for whom shares of our common stock are held in a “nominee” or “street” name. In addition, as of February 12, 2021, Antero Resources and its subsidiaries owned 139,042,345 shares of our common stock, which represented a 29.2% interest in us. Issuer Purchases of Equity Securities The following table sets forth our common stock repurchase activity for each period presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ ​ ​ ​ ​ ​ ​ Total Number of ​ Dollar Value of ​ ​ ​ Total Number ​ Average Price ​ Shares Purchased ​ Shares that May ​ ​ ​ of Shares ​ Paid per ​ as Part of Publicly ​ Yet be Purchased ​ Period ​ Purchased (1) ​ Share ​ Announced Plans (2) ​ Under the Plan ​ October 1, 2020 – October 31, 2020 ​ 1,461 ​ $ 6.43 ​ — ​ $ 149,767,409 ​ November 1, 2020 – November 30, 2020 ​ — ​ ​ — ​ — ​ ​ N/A ​ December 1, 2020 – December 31, 2020 ​ — ​ ​ — ​ — ​ ​ N/A ​ Total ​ 1,461 ​ $ 6.43 ​ — ​ $ 149,767,409 ​ (1) The total number of shares purchased represents shares of our common stock transferred to us in order to satisfy tax withholding obligations incurred upon the vesting of equity awards held by our employees. (2) In August 2019, the Board authorized a $300 million share repurchase program. During the three months ended December 31, 2020, we did not make any repurchases under this program . ​ Dividends On January 20, 2021, the Board declared an aggregate cash dividend on the shares of our common stock of $0.3075 per share for the quarter ended December 31, 2020. The dividend will be payable on February 11, 2021 to stockholders of record as of February 3, 2021. The Board also declared a cash dividend of $138 thousand on shares of our Series A Non-Voting Perpetual Preferred Stock, par value $0.01 (the “Series A Preferred Stock”), to be paid on February 16, 2021 in accordance with the terms of the Series A Preferred Stock, which are discussed in Note 14—Equity and Earnings Per Common Share to our consolidated financial statements. As of December 31, 2020, there were dividends in the amount of $69 thousand accumulated in arrears on our Series A Preferred Stock. Stock Performance Graph The graph below shows the cumulative total shareholder return assuming the investment of $100 on May 4, 2017, the date of our initial public offering, in each of our predecessor’s common shares through March 12, 2019 and our common stock thereafter, the 37 ​ Table of Contents Standard & Poor’s 500 (“S&P 500”) Index, and the Alerian Midstream Energy (“AMNA”) Index. We believe the AMNA Index is meaningful because it is an independent, objective view of the performance of similarly-sized midstream energy companies. ​ ​ The information in this Form 10-K appearing under the heading “Stock Performance Graph” is being “furnished” pursuant to Item 2.01(e) of Regulation S-K under the Securities Act and shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 2.01(e) of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act and shall not be deemed incorporated by reference into any filing under the Securities Act of the Exchange Act except to the extent that we specifically request that it be treated as such. ITEM 6. Selected financial data The following table presents our selected historical financial data, for the periods and as of the dates indicated, for the Company and its predecessors. Our predecessor, AMGP, was originally formed as ARMM to become the general partner of Antero Midstream Partners and converted into a limited partnership on May 4, 2017 in connection with our IPO. On March 12, 2019, pursuant to the Simplification Agreement, we completed the Transactions. The Merger has been accounted for as an acquisition by AMGP of Antero Midstream Partners under ASC 805 – Business Combinations and accounted for as a business combination, with the assumed assets and liabilities of Antero Midstream Partners recorded at their estimated fair value. As a result of the Merger, our historical financial data for previous periods are not comparable to the years ended December 31, 2019 and 2020 or to our future financial results. The selected financial data for the years ended December 31, 2016, 2017 and 2018 are the financial statements of AMGP and its consolidated subsidiaries, which do not include Antero Midstream Partners and its subsidiaries. Effective March 12, 2019, we began consolidating Antero Midstream Partners and its subsidiaries in our consolidated financial statements. As a result, our selected balance sheet financial data presented below at December 31, 2019 includes the financial position of Antero Midstream Partners and its subsidiaries, and our selected consolidated statements of operations and comprehensive income and cash flows data for the year ended December 31, 2019 include the results of operations of Antero Midstream Partners and its subsidiaries beginning on March 13, 2019. The historical selected consolidated statement of operations data included herein reflects that, prior to the Merger, AMGP’s only income resulted from distributions made on the incentive distribution rights (the “IDRs”) of Antero Midstream Partners and expenses were limited to general and administrative expenses and equity-based compensation. Please read “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Items Affecting Comparability of our Financial Results.” Accordingly, we are also presenting our pro forma results of operations for the years ended December 31, 2018 and December 31, 2019, which give effect to the adjustments described in Exhibit 99.1 to this Annual Report on Form 10-K. The pro forma information presented below should be read in conjunction with the unaudited pro forma condensed combined financial statements, which are filed as Exhibit 99.1 to this Annual Report on Form 10-K and describe the assumptions and adjustments used in preparing such information. The pro forma adjustments are based on currently available information and certain estimates and 38 ​ Table of Contents assumptions. Therefore, the actual adjustments may differ from the pro forma adjustments. However, management believes that the pro forma assumptions provide a reasonable basis for presenting the results of operations on a more meaningful basis. The selected statement of operations data and statement of cash flows data for the years ended December 31, 2018, 2019 and 2020 and the balance sheet data as of December 31, 2019 and 2020 are derived from our audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. The selected statement of operations data and statement of cash flows data for the years ended December 31, 2016 and 2017 and the selected balance sheet data as of December 31, 2016, 2017 and 2018 is derived from our audited consolidated financial statements not included in Item 8 of this Annual Report on Form 10-K. The selected financial data presented below are qualified in their entirety by reference to, and should be read in conjunction with, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this report: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ (in thousands, except per share amounts) 2016 2017 2018 2019 2020 ​ Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gathering and compression–Antero Resources ​ $ — ​ ​ — ​ ​ — ​ ​ 543,538 ​ ​ 711,459 ​ Water handling–Antero Resources ​ ​ — ​ ​ — ​ ​ — ​ ​ 306,010 ​ ​ 259,932 ​ Water handling–third party ​ ​ — ​ ​ — ​ ​ — ​ ​ 50 ​ ​ — ​ Amortization of customer relationships ​ ​ — ​ ​ — ​ ​ — ​ ​ (57,010) ​ ​ (70,672) ​ Total revenue ​ ​ — ​ ​ — ​ ​ — ​ ​ 792,588 ​ ​ 900,719 ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Direct operating ​ ​ — ​ ​ — ​ ​ — ​ ​ 195,818 ​ ​ 165,386 ​ General and administrative (excluding equity-based compensation) ​ ​ 814 ​ ​ 6,201 ​ ​ 8,740 ​ ​ 44,596 ​ ​ 39,435 ​ Equity-based compensation ​ ​ — ​ ​ 34,933 ​ ​ 35,111 ​ ​ 73,517 ​ ​ 12,778 ​ Facility idling ​ ​ — ​ ​ — ​ ​ — ​ ​ 11,401 ​ ​ 15,219 ​ Impairment of goodwill ​ ​ — ​ ​ — ​ ​ — ​ ​ 340,350 ​ ​ 575,461 ​ Impairment of property and equipment ​ ​ — ​ ​ — ​ ​ — ​ ​ 409,739 ​ ​ 98,179 ​ Impairment of customer relationships ​ ​ — ​ ​ — ​ ​ — ​ ​ 11,871 ​ ​ — ​ Depreciation ​ ​ — ​ ​ — ​ ​ — ​ ​ 95,526 ​ ​ 108,790 ​ Accretion and change in fair value of contingent acquisition consideration ​ ​ — ​ ​ — ​ ​ — ​ ​ 8,076 ​ ​ — ​ Accretion of asset retirement obligations ​ ​ — ​ ​ — ​ ​ — ​ ​ 187 ​ ​ 180 ​ Loss on asset sale ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,929 ​ Total operating expenses ​ ​ 814 ​ ​ 41,134 ​ ​ 43,851 ​ ​ 1,191,081 ​ ​ 1,018,357 ​ Operating loss ​ ​ (814) ​ ​ (41,134) ​ ​ (43,851) ​ ​ (398,493) ​ ​ (117,638) ​ Interest expense, net ​ ​ — ​ ​ — ​ ​ (136) ​ ​ (110,402) ​ ​ (147,007) ​ Equity in earnings of unconsolidated affiliates ​ ​ 16,944 ​ ​ 69,720 ​ ​ 142,906 ​ ​ 51,315 ​ ​ 86,430 ​ Income (loss) before income taxes ​ ​ 16,130 ​ ​ 28,586 ​ ​ 98,919 ​ ​ (457,580) ​ ​ (178,215) ​ Provision for income tax benefit (expense) ​ ​ (6,419) ​ ​ (26,261) ​ ​ (32,311) ​ ​ 102,466 ​ ​ 55,688 ​ Net income (loss) and comprehensive income (loss) ​ $ 9,711 ​ ​ 2,325 ​ ​ 66,608 ​ ​ (355,114) ​ ​ (122,527) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per share–basic and diluted ​ ​ ​ ​ $ 0.03 ​ ​ 0.33 ​ ​ (0.80) ​ ​ (0.26) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ ​ ​ ​ 186,176 ​ ​ 186,203 ​ ​ 442,640 ​ ​ 478,278 ​ Diluted ​ ​ ​ ​ ​ 186,176 ​ ​ 186,203 ​ ​ 442,640 ​ ​ 478,278 ​ ​ 39 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ (in thousands, except per share amounts) 2016 2017 2018 2019 2020 ​ Balance sheet data (at period end): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 9,609 ​ ​ 5,987 ​ ​ 2,822 ​ ​ 1,235 ​ ​ 640 ​ Other current assets ​ ​ 217 ​ ​ — ​ ​ 87 ​ ​ 107,323 ​ ​ 93,291 ​ Total current assets ​ ​ 9,826 ​ ​ 5,987 ​ ​ 2,909 ​ ​ 108,558 ​ ​ 93,931 ​ Property and equipment, net ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,273,410 ​ ​ 3,254,044 ​ Investments in unconsolidated affiliates ​ ​ 7,543 ​ ​ 23,772 ​ ​ 43,492 ​ ​ 709,639 ​ ​ 722,478 ​ Other assets ​ ​ — ​ ​ — ​ ​ 1,304 ​ ​ 2,191,271 ​ ​ 1,540,459 ​ Total assets ​ $ 17,369 ​ ​ 29,759 ​ ​ 47,705 ​ ​ 6,282,878 ​ ​ 5,610,912 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ 7,100 ​ ​ 14,151 ​ ​ 16,844 ​ ​ 242,084 ​ ​ 94,005 ​ Long-term indebtedness ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,892,249 ​ ​ 3,091,626 ​ Other long-term liabilities ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,131 ​ ​ 6,995 ​ Total partners' capital and stockholders' equity ​ ​ 10,269 ​ ​ 15,608 ​ ​ 30,861 ​ ​ 3,143,414 ​ ​ 2,418,286 ​ Total liabilities and partners' capital and stockholders' equity ​ $ 17,369 ​ ​ 29,759 ​ ​ 47,705 ​ ​ 6,282,878 ​ ​ 5,610,912 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash provided by operating activities ​ $ 9,537 ​ ​ 28,080 ​ ​ 83,531 ​ ​ 622,387 ​ ​ 753,382 ​ Net cash used in investing activities ​ $ — ​ ​ — ​ ​ — ​ ​ (525,675) ​ ​ (219,231) ​ Net cash used in financing activities ​ $ — ​ ​ (31,702) ​ ​ (86,696) ​ ​ (98,299) ​ ​ (534,746) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other financial data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Distributions or dividends declared per share ​ ​ ​ ​ $ 0.16 ​ ​ 0.54 ​ ​ 1.23 ​ ​ 1.23 ​ Pro forma Net income (loss) ​ ​ ​ ​ ​ ​ ​ $ 312,894 ​ ​ (285,076) ​ ​ ​ ​ Adjusted EBITDA (1)(2) ​ ​ ​ ​ ​ ​ ​ $ 708,635 ​ ​ 829,558 ​ ​ 850,209 ​ (1) Adjusted EBITDA is a non-GAAP financial measure. For a discussion of this measure, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures”. (2) 2018 and 2019 information is Pro Forma. 40 ​ Table of Contents ​ The following table presents our pro forma results of operations for the years ended December 31, 2018 and 2019, which give effect to the adjustments described in Exhibit 99.1 to this Annual Report on Form 10-K. The pro forma information presented below should be read in conjunction with the unaudited pro forma condensed combined financial statements, which are filed as Exhibit 99.1 to this Annual Report on Form 10-K and describe the assumptions and adjustments used in preparing such information. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2018 2019 ​ Revenues: ​ ​ ​ ​ ​ ​ ​ Revenue–Antero Resources ​ $ 1,027,015 ​ ​ 1,067,858 ​ Revenue–third-party ​ ​ 924 ​ ​ 101 ​ Gain on sales of assets–Antero Resources ​ ​ 583 ​ ​ — ​ Amortization of customer relationships ​ ​ (71,082) ​ ​ (70,874) ​ Total revenues ​ ​ 957,440 ​ ​ 997,085 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ Direct operating ​ ​ 316,423 ​ ​ 260,636 ​ General and administrative (excluding equity-based compensation) ​ ​ 49,296 ​ ​ 45,567 ​ Equity-based compensation ​ ​ 56,184 ​ ​ 75,994 ​ Facility idling ​ ​ — ​ ​ 11,401 ​ Impairment of property and equipment ​ ​ 5,771 ​ ​ 416,721 ​ Impairment of goodwill ​ ​ — ​ ​ 340,350 ​ Impairment of customer relationships ​ ​ — ​ ​ 11,871 ​ Depreciation ​ ​ 145,745 ​ ​ 120,363 ​ Accretion and change in fair value of contingent acquisition consideration ​ ​ (93,019) ​ ​ 10,004 ​ Accretion of asset retirement obligations ​ ​ 135 ​ ​ 250 ​ Total expenses ​ ​ 480,535 ​ ​ 1,293,157 ​ Operating income (loss) ​ ​ 476,905 ​ ​ (296,072) ​ Other income (expenses): ​ ​ ​ ​ ​ ​ ​ Interest expense, net ​ ​ (83,794) ​ ​ (130,518) ​ Equity in earnings of unconsolidated affiliates ​ ​ 34,189 ​ ​ 62,394 ​ Income (loss) before taxes ​ ​ 427,300 ​ ​ (364,196) ​ Provision for income tax benefit (expense) ​ ​ (114,406) ​ ​ 79,120 ​ Net income (loss) and comprehensive income (loss) ​ $ 312,894 ​ ​ (285,076) ​ ​ Non-GAAP Financial Measures ​ We use Adjusted EBITDA as an important indicator of our performance. In our presentation of Adjusted EBITDA for the year ended December 31, 2020, net income (loss) and the corresponding adjustments reflect our actual results of operations. In our presentation of Adjusted EBITDA for the years ended December 31, 2019 and 2018, net income (loss) and the corresponding adjustments reflect our pro forma results of operations. The pro forma information should be read in conjunction with the unaudited pro forma condensed combined financial statements, which are filed as Exhibit 99.1 to this Annual Report on Form 10-K. For more information, see “Items Affecting Comparability of Our Financial Results.” We define Adjusted EBITDA as net income before net interest expense, income tax expense, depreciation, impairment, accretion and changes in fair value of contingent acquisition consideration, accretion of asset retirement obligations, equity-based compensation, excluding equity in earnings of unconsolidated affiliates, contract restructuring expenses, amortization of customer relationships, gains and losses on asset sales and including cash distributions from unconsolidated affiliates. We use Adjusted EBITDA to assess: ● the financial performance of our assets, without regard to financing methods capital structure or historical cost basis; ● our operating performance and return on capital as compared to other publicly traded companies in the midstream energy sector, without regard to financing or capital structure; and ● the viability of acquisitions and other capital expenditure projects. 41 ​ Table of Contents Adjusted EBITDA is a non-GAAP financial measure. The GAAP measure most directly comparable to Adjusted EBITDA is net income (loss). The non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income (loss). Adjusted EBITDA presentations are not made in accordance with GAAP and have important limitations as an analytical tool because they include some, but not all, items that affect net income (loss). You should not consider Adjusted EBITDA in isolation or as a substitute for analyses of results as reported under GAAP. Our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other corporations. The following table represents a reconciliation of our Adjusted EBITDA to the most directly comparable GAAP financial measure for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ (in thousands) ​ 2018 (1) ​ 2019 (1) ​ 2020 ​ Reconciliation of Net Income (Loss) to Adjusted EBITDA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 312,894 ​ ​ (285,076) ​ ​ (122,527) ​ Interest expense, net ​ ​ 83,794 ​ ​ 130,518 ​ ​ 147,007 ​ Income tax expense (benefit) ​ ​ 114,406 ​ ​ (79,120) ​ ​ (55,688) ​ Amortization of customer relationships ​ ​ 71,082 ​ ​ 70,874 ​ ​ 70,672 ​ Depreciation expense ​ ​ 145,745 ​ ​ 120,363 ​ ​ 108,790 ​ Impairment ​ ​ 5,771 ​ ​ 768,942 ​ ​ 673,640 ​ Accretion and change in fair value of contingent acquisition consideration ​ ​ (92,884) ​ ​ 10,254 ​ ​ 180 ​ Equity-based compensation ​ ​ 56,184 ​ ​ 75,994 ​ ​ 12,778 ​ Equity in earnings of unconsolidated affiliates ​ ​ (34,189) ​ ​ (62,394) ​ ​ (86,430) ​ Gain on sale of assets–Antero Resources ​ ​ (583) ​ ​ — ​ ​ — ​ Loss on asset sale ​ ​ — ​ ​ — ​ ​ 2,929 ​ Contract restructuring fees ​ ​ — ​ ​ 2,278 ​ ​ — ​ Distributions from unconsolidated affiliates ​ ​ 46,415 ​ ​ 76,925 ​ ​ 98,858 ​ Adjusted EBITDA ​ $ 708,635 ​ ​ 829,558 ​ ​ 850,209 ​ (1) Pro Forma.