Equitrans Midstream Announces Second Quarter 2022 Results

CANONSBURG, Pa.–(BUSINESS WIRE)–Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the second quarter 2022. 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.

Q2 2022 Highlights:

• Generated $74 million of net income and achieved $264 million of adjusted EBITDA
• Recorded 71% of total operating revenue from firm reservation fees
• Delivered results ahead of guidance
• Raised full-year financial guidance
• Published 2022 Corporate Sustainability Report
• Secured new booster compression expansion project

“Our second quarter results continue to highlight the strength of our base business and ability to generate free cash flow,” said Thomas F. Karam, Equitrans chairman and chief executive officer. “We have increased our full-year guidance and recently secured a new, organic compression project for one of our producer customers, which will further enhance our asset footprint. Additionally, we are focused on MVP’s permit renewal process and appreciate the agencies’ substantial and continued efforts to satisfy the Court.”

“We have been working to position Equitrans to be resilient in any environment, including the global transformation to a lower-carbon future, and in the past year we’ve made great strides incorporating ESG into ETRN’s DNA,” said Diana M. Charletta, Equitrans president and chief operating officer. “Building upon our already robust ESG disclosures, we recently published our annual corporate sustainability report, which, as an early adopter, utilizes GRI’s newest ‘Consolidated Set of the GRI Standards 2021’ and continues to follow SASB Oil & Gas Midstream reporting standards.

“Sustainability performance is about knowing we, as a Company, are doing the right thing for future generations – serving Americans’ current and increasing needs for reliable, clean-burning energy and supporting our national security and energy independence. We believe that our continued commitment to sustainability, including minimizing impacts to the environment and society, will serve to create long-term value for all stakeholders.”

2022 SECOND QUARTER SUMMARY RESULTS

	Three Months Ended June 30, 2022
$ millions (except per share metrics)
Net income attributable to ETRN common shareholders	$	55.2
Adjusted net income attributable to ETRN common shareholders	$	47.3
Earnings per diluted share attributable to ETRN common shareholders	$	0.13
Adjusted earnings per diluted share attributable to ETRN common shareholders	$	0.11
Net income	$	73.8
Adjusted EBITDA	$	263.8
Deferred revenue	$	89.4
Net cash provided by operating activities	$	351.0
Free cash flow	$	183.5
Retained free cash flow	$	118.6

Net income attributable to ETRN common shareholders for the second quarter 2022 was impacted by several items, including a $13.7 million unrealized gain on derivative instruments, a $24.9 million loss on extinguishment of debt, and a $16.2 million reduction of valuation allowances on deferred tax assets. 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 beginning with the quarter in which the Mountain Valley Pipeline (MVP) is placed in-service through the fourth quarter of 2024. The contract is accounted for as a derivative with the fair value marked-to-market at each quarter-end. The loss on extinguishment of debt is primarily related to the purchase of approximately $1 billion aggregate principal amount of several tranches of EQM Midstream Partners, LP’s (EQM), a wholly owned subsidiary of ETRN, senior notes in tender offers. The reduction in valuation allowances is reported within income tax expense.

As a result of the gathering agreement entered into with EQT in February 2020, revenue from the contracted minimum volume commitment (MVC) is recognized utilizing an average gathering rate applied over the 15-year contract life. The difference between the cash received from the MVC and the revenue recognized results in the deferral of revenue into future periods. For the second quarter 2022, deferred revenue was $89.4 million.

Operating revenue for the second quarter decreased by $19.7 million, compared to the same quarter last year, primarily due to increased deferred revenue, lower gathered volumes and lower water services revenue. Operating expenses decreased by $70.0 million compared to the second quarter 2021, primarily as a result of a $56.2 million impairment of long-lived assets in the second quarter 2021, lower selling, general and administrative expenses, and lower operating and maintenance expenses.

QUARTERLY DIVIDEND

For the second quarter 2022, ETRN will pay a quarterly cash dividend of $0.15 per common share on August 12, 2022, to ETRN common shareholders of record at the close of business on August 3, 2022.

TOTAL CAPITAL EXPENDITURES AND CAPITAL CONTRIBUTIONS
$ millions		Three Months Ended June 30, 2022		Six Months Ended June 30, 2022		Full-Year 2022 Forecast
MVP		$39		$111		$175 – $215
Gathering(1)		$61		$111		$250 – $290
Transmission(2)		$6		$11		$40
Water(3)		$22		$32		$75
Total		$128		$265		$540 – $620

(1)	Excludes $8.7 million and $11.7 million of capital expenditures related to the noncontrolling interest in Eureka Midstream Holdings, LLC (Eureka) for the three and six months ended June 30, 2022, respectively. Full-year 2022 forecast excludes approximately $20 million of capital expenditures related to the noncontrolling interests in Eureka.
(2)	Includes capital contributions to Mountain Valley Pipeline, LLC (MVP JV) for the MVP Southgate project.
(3)	Full-year forecast includes approximately $20 million to replace certain previously installed water lines that ETRN believes do not meet their prescribed quality standards. ETRN is pursuing recoupment of such replacement and related costs.

OUTLOOK

Financial Outlook
$ millions		Q3 2022
Net income		$50 – $70
Adjusted EBITDA		$250 – $270
Deferred Revenue		$75
$ millions		Full-Year 2022
Net income		$255 – $325
Adjusted EBITDA		$1,015 – $1,085
Deferred Revenue		$340
Free cash flow		$300 – $370
Retained free cash flow		$40 – $110

BUSINESS AND PROJECT UPDATES

Outstanding Debt and Liquidity

As of June 30, 2022, ETRN reported $6.4 billion of consolidated long-term debt; $160.0 million of borrowings and $234.9 million of letters of credit outstanding under EQM’s revolving credit facility; $260.5 million of borrowings under Eureka’s revolving credit facility; and $114.5 million of cash.

Senior Notes Offering and Tender Results

On June 7, 2022, EQM completed the issuance of $500 million aggregate principal amount of its 7.50% senior notes due 2027 and $500 million aggregate principal amount of its 7.50% senior notes due 2030. Net proceeds from the offering and cash on hand were used to acquire in tender offers approximately $500 million of aggregate principal amount of EQM’s outstanding 4.75% senior notes due 2023, $200 million of aggregate principal amount of EQM’s 4.00% senior notes due 2024, and $300 million of aggregate principal amount of EQM’s 6.00% senior notes due 2025.

Exercise of Cash Option

Pursuant to the 2020 gathering agreement, on July 8, 2022, EQT elected to forgo aggregate gathering rate relief of $235 million in the 24 months following MVP’s in-service in exchange for a cash payment of approximately $196 million. The cash payment represents final consideration for approximately 20.5 million ETRN common shares that were purchased from EQT and retired in the first quarter of 2020. ETRN expects to make the cash payment no later than October 5, 2022.

2022 Corporate Sustainability Report

On July 28, 2022, ETRN published its annual Corporate Sustainability Report (CSR), which was produced under the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) Oil & Gas Midstream Standards. In 2021, GRI updated and released its “Consolidated Set of the GRI Standards 2021” – effective for companies’ reporting in 2023. As an early adopter, ETRN’s 2022 CSR utilizes this most recent set of GRI Universal and Topic Standards, as well as GRI’s Oil and Gas Sector Standard 2021. The report content reflects the results of ETRN’s most recent materiality assessment, which, for the first time, included engaging both internal and external stakeholders to identify the Environmental, Social, and Governance (ESG) topics most significant to ETRN’s business and stakeholders. The report can be viewed online at csr.equitransmidstream.com.

Compression Expansion Project

ETRN recently entered into an agreement with a producer customer to install approximately 32,000 horsepower booster compression to existing facilities. The project is backed by a long-term firm commitment and is targeted to be in-service in mid-2024. ETRN expects to invest approximately $70 million, with a majority of the capital spend in 2023 and 2024.

Ohio Valley Connector Expansion Project

On July 7, 2022, the Federal Energy Regulatory Commission (FERC) issued a Notice of Intent to Prepare an Environmental Impact Statement for the Ohio Valley Connector Expansion Project (OVCX). OVCX will increase deliverability on ETRN’s Ohio Valley Connector pipeline by approximately 350 MMcf per day and is designed to meet growing demand in key markets in the mid-continent and Gulf Coast through existing interconnects with long-haul pipelines in Clarington, OH. Based on the expected regulatory and permitting timeframe, ETRN is targeting the incremental capacity to be in-service during the first half of 2024. ETRN expects to invest approximately $160 million in the project, which is primarily supported by a long-term firm capacity commitment of 330 MMcf per day.

Mountain Valley Pipeline

MVP JV is engaged in the permitting process with the relevant federal agencies for the outstanding permits required to complete the project. ETRN continues to target a full in-service date during the second half of 2023 at a total project cost of approximately $6.6 billion. Through June 30, 2022, ETRN has funded approximately $2.6 billion and, based on the total project cost estimate, expects to fund a total of approximately $3.4 billion and to have an approximate 48.1% ownership interest in MVP. ETRN will operate the pipeline.

MVP Southgate

The MVP JV continues to evaluate the MVP Southgate project, including engaging in discussions with the shipper regarding options for the project, such as potential changes to the project design and timing in lieu of pursuing the project as originally contemplated. As originally designed, MVP Southgate is estimated to cost approximately $450 million to $500 million and is backed by a 300 MMcf per day firm capacity commitment from Dominion Energy North Carolina. In 2022, ETRN expects to make capital contributions related to MVP Southgate of less than $5 million. ETRN has a 47.2% ownership interest in MVP Southgate and would operate the pipeline.

Water Services

In the second quarter, water operating income was $3.1 million and water EBITDA was $7.9 million. For the year, ETRN expects water EBITDA of approximately $30 million.

Q2 2022 Earnings Conference Call Information

ETRN will host a conference call with security analysts today, August 2, 2022, at 10:30 a.m. (ET) to discuss second quarter 2022 financial results, operating results, and other business matters.

Call Access: An audio live stream of the call will be available on the internet, and participants are encouraged to pre-register online, in advance of the call. A link to the audio live stream will be available on the Investors page of ETRN’s website the day of the call.

Security Analysts :: Dial-In Participation

To participate in the Q&A session, security analysts may access the call in the U.S. tollfree at (888) 330-3573; and internationally at (646) 960-0677. The ETRN conference ID is 6625542.

All Other Participants :: Webcast Registration

Please Note: For optimal audio quality, the webcast is best supported through Google Chrome and Mozilla Firefox browsers.

Call Replay: For 14 days following the call, an audio replay will be available at (800) 770-2030 or (647) 362-9199. The ETRN conference ID: 6625542.

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 (loss) attributable to ETRN common shareholders and adjusted earnings (loss) 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 (loss) attributable to ETRN common shareholders and adjusted earnings (loss) per diluted share attributable to ETRN common shareholders as presented provide useful information for investors for evaluating period-over-period earnings. Adjusted net income (loss) attributable to ETRN common shareholders and adjusted earnings (loss) per diluted share attributable to ETRN common shareholders should not be considered as alternatives to net income (loss) attributable to ETRN common shareholders, earnings (loss) per diluted share attributable to ETRN common shareholders or any other measure of financial performance presented in accordance with GAAP. Adjusted net income (loss) attributable to ETRN common shareholders and adjusted earnings (loss) 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 (loss) attributable to ETRN common shareholders and earnings (loss) per diluted share attributable to ETRN common shareholders, including, as applicable, impairments of long-lived assets and equity method investments, unrealized gain (loss) on derivative instruments, loss on extinguishment of debt and the related tax impacts of these items, which items affect the comparability of results period to period. Additionally, because these non-GAAP metrics may be defined differently by other companies in ETRN’s industry, ETRN’s definitions of adjusted net income (loss) attributable to ETRN common shareholders and adjusted earnings (loss) 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 (loss) attributable to ETRN common shareholders and adjusted earnings (loss) per diluted share attributable to ETRN common shareholders should not be viewed as indicative of the actual amount of net income (loss) attributable to ETRN common shareholders or actual earnings (loss) 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, 2022.

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)		2022				2021
Net income attributable to ETRN common shareholders		$	55,230			$	22,485
Add back (deduct):
Impairment of long-lived assets			—				56,178
Unrealized gain on derivative instruments			(13,726	)			(9,434	)
Loss on extinguishment of debt			24,937				—
Tax impact of non-GAAP items(1)			(19,140	)			(12,270	)
Adjusted net income attributable to ETRN common shareholders		$	47,301			$	56,959
Diluted weighted average common shares outstanding			434,025				433,464
Adjusted earnings per diluted share attributable to ETRN common shareholders		$	0.11			$	0.13

(1)	The adjustments were tax effected at ETRN’s federal and state statutory tax rate for each period and account for certain discrete valuation allowance adjustments associated with the impact of nonrecurring items.

Adjusted EBITDA

As used in this news release, Adjusted EBITDA means, as applicable, net income (loss) plus income tax expense (benefit), net interest expense, loss on extinguishment of debt, depreciation, amortization of intangible assets, impairments of long-lived assets and equity method investment, payments on the preferred interest in EQT Energy Supply, LLC (Preferred Interest), non-cash long-term compensation expense, and 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 June 30, 2022.

Reconciliation of Adjusted EBITDA
		Three Months Ended June 30,
(Thousands)		2022				2021
Net income		$	73,806			$	40,121
Add (deduct):
Income tax expense			3,650				12,564
Net interest expense			95,117				95,642
Loss on extinguishment of debt			24,937				—
Depreciation			67,657				69,315
Amortization of intangible assets			16,205				16,205
Impairment of long-lived assets			—				56,178
Preferred Interest payments			2,746				2,746
Non-cash long-term compensation expense			3,656				3,146
Equity income			(39	)			(5,921	)
AFUDC – equity			(45	)			(63	)
Unrealized gain on derivative instruments			(13,726	)			(9,434	)
Adjusted EBITDA attributable to noncontrolling interest(1)			(10,117	)			(8,946	)
Adjusted EBITDA		$	263,847			$	271,553

(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 June 30, 2022, was calculated as net income of $3.9 million plus depreciation of $3.1 million, plus amortization of intangible assets of $2.1 million and plus interest expense of $1.0 million. Adjusted EBITDA attributable to noncontrolling interest for the three months ended June 30, 2021, was calculated as net income of $3.0 million, plus depreciation of $2.9 million, plus amortization of intangible assets of $2.1 million, and plus interest expense of $0.9 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, dividends paid to Series A Preferred Shareholders, premiums and fees paid on extinguishment of debt, capital expenditures (excluding the noncontrolling interest share (40%) of Eureka capital expenditures), and capital contributions to MVP JV.

Retained Free Cash Flow

As used in this news release, retained free cash flow means free cash flow less dividends paid to common shareholders.

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, 2022.

Reconciliation of Free Cash Flow and Retained Free Cash Flow
		Three Months Ended June 30,
(Thousands)		2022				2021
Net cash provided by operating activities		$	351,026			$	382,595
Add (deduct):
Principal payments received on the Preferred Interest			1,370				1,295
Net cash provided by operating activities attributable to noncontrolling interest(1)			(10,475	)			(9,519	)
ETRN Series A Preferred Shares dividends(2)			(14,628	)			(14,628	)
Premiums and fees on debt extinguishment			(20,400	)			—
Capital expenditures(3)(4)			(84,144	)			(65,528	)
Capital contributions to MVP JV			(39,215	)			(73,932	)
Free cash flow		$	183,534			$	220,283
Less:
Dividends paid to common shareholders (5)			(64,915	)			(64,874	)
Retained free cash flow		$	118,619			$	155,409

(1)	Reflects 40% of $26.2 million and $23.8 million, which was Eureka’s standalone net cash provided by operating activities for the three months ended June 30, 2022, and June 30, 2021, respectively, which represents the noncontrolling interest portion for the three months ended June 30, 2022, and June 30, 2021, respectively.
(2)	Reflects cash dividends paid of $0.4873 per ETRN Series A Perpetual Convertible Preferred Share.
(3)	Does not reflect amounts related to the noncontrolling interest share of Eureka.
(4)	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.
(5)	First quarter 2022 dividend of $0.15 per ETRN common share was paid during the second quarter 2022.

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 (loss), operating income, or 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 (loss), 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.

Contacts

Analyst inquiries:
Nate Tetlow – Vice President, Corporate Development and Investor Relations

412-553-5834

ntetlow@equitransmidstream.com

Media inquiries:
Natalie Cox – Communications and Corporate Affairs

412-395-3941

ncox@equitransmidstream.com

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