Antero Midstream 10Q 2020 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38075

ANTERO MIDSTREAM CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		61-1748605
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1615 Wynkoop Street Denver, Colorado		80202
(Address of principal executive offices)		(Zip Code)

(303) 357-7310

(Registrant’s telephone number, including area code)



Securities registered pursuant to section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01	AM	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes ◻ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes ◻ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ⌧		Accelerated Filer ◻

Non-accelerated Filer ◻		Smaller Reporting Company ☐
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ⌧ No

The registrant had 476,597,058 shares of common stock outstanding as of July 24, 2020.

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain such identifying words. When considering these forward-looking statements, investors should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. These forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

●

Antero Resources Corporation’s (“Antero Resources”) expected production and development plan;

●

impacts to producer customers of insufficient storage capacity;

●

our ability to execute our business strategy;

●

our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;

●

our ability to realize the anticipated benefits of our investments in unconsolidated affiliates;

●

natural gas, natural gas liquids (“NGLs”), and oil prices;

●

impacts of world health events, including the coronavirus (COVID-19) pandemic;

●

our ability to complete the construction of or purchase new gathering and compression, processing, water handling or other assets on schedule, at the budgeted cost or at all, and the ability of such assets to operate as designed or at expected levels;

●

our ability to execute our share repurchase program;

●

competition and government regulations;

●

actions taken by third-party producers, operators, processors and transporters;

●

pending legal or environmental matters;

●

costs of conducting our operations;

●

general economic conditions;

●

credit markets;

●

operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;

●

uncertainty regarding our future operating results; and

●

our other plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q.

We caution investors that these forward-looking statements are subject to all of the risks and uncertainties incidental to our business, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, environmental risks, Antero Resources’ drilling and completion and other operating risks,

Table of Contents

regulatory changes, the uncertainty inherent in projecting Antero Resources’ future rates of production, cash flows and access to capital, the timing of development expenditures, impacts of world health events, including the COVID-19 pandemic, potential shut-ins of production by producers due to lack of downstream demand or storage capacity, and the other risks described or referenced under the heading “Risk Factors” herein, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, each of which is on file with the Securities and Exchange Commission (“SEC”).

Should one or more of the risks or uncertainties described or referenced in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

Table of Contents

PART I—FINANCIAL INFORMATION

ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Balance Sheets

December 31, 2019 and June 30, 2020

(In thousands)


			(Unaudited)
	December 31,		June 30,
	2019		2020
Assets
Cash and cash equivalents	$	1,235		2,997
Accounts receivable–Antero Resources		101,029		76,088
Accounts receivable–third party		4,574		3,392
Income tax receivable		—		17,547
Other current assets		1,720		645
Total current assets		108,558		100,669
Property and equipment, net		3,273,410		3,249,643
Investments in unconsolidated affiliates		709,639		729,823
Deferred tax asset		103,231		160,579
Customer relationships		1,498,119		1,462,908
Goodwill		575,461		—
Other assets, net		14,460		11,433
Total assets	$	6,282,878		5,715,055

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable–Antero Resources	$	3,146		2,714
Accounts payable–third party		6,645		19,822
Accrued liabilities		104,188		72,284
Contingent acquisition consideration		125,000		—
Other current liabilities		3,105		3,325
Total current liabilities		242,084		98,145
Long-term liabilities:
Long-term debt		2,892,249		3,088,785
Other		5,131		4,943
Total liabilities		3,139,464		3,191,873

Stockholders' Equity:
Preferred stock, $0.01 par value: 100,000 authorized at December 31, 2019 and June 30, 2020, respectively
Series A non-voting perpetual preferred stock; 12 designated and 10 issued and outstanding at both December 31, 2019 and June 30, 2020		—		—
Common stock, $0.01 par value; 2,000,000 authorized; 484,042 and 476,486 issued and outstanding at December 31, 2019 and June 30, 2020, respectively		4,840		4,765
Additional paid-in capital		3,480,139		3,164,474
Accumulated loss		(341,565)		(646,057)
Total stockholders' equity		3,143,414		2,523,182
Total liabilities and stockholders' equity	$	6,282,878		5,715,055

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income

Three Months Ended June 30, 2019 and 2020

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended June 30,
	2019		2020
Revenue:
Gathering and compression–Antero Resources	$	168,925		173,991
Water handling–Antero Resources		95,181		63,351
Water handling and treatment–third party		46		—
Amortization of customer relationships		(8,534)		(17,606)
Total revenue		255,618		219,736
Operating expenses:
Direct operating		63,998		42,067
General and administrative (including $21,543 and $2,697 of equity-based compensation in 2019 and 2020, respectively)		34,622		12,422
Facility idling		—		2,475
Impairment of property and equipment		594		—
Depreciation		36,447		27,745
Accretion and change in fair value of contingent acquisition consideration		2,297		—
Accretion of asset retirement obligations		69		61
Loss on asset sale		—		240
Total operating expenses		138,027		85,010
Operating income		117,591		134,726
Interest expense, net		(31,521)		(35,311)
Equity in earnings of unconsolidated affiliates		13,623		20,947
Income before income taxes		99,693		120,362
Provision for income tax expense		(30,419)		(31,921)
Net income and comprehensive income	$	69,274		88,441

Net income per share–basic	$	0.14		0.19
Net income per share–diluted	$	0.14		0.18

Weighted average common shares outstanding:
Basic		506,816		476,836
Diluted		507,767		478,837

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Six Months Ended June 30, 2019 and 2020

(Unaudited)

(In thousands, except per share amounts)


	Six Months Ended June 30,
	2019		2020
Revenue:
Gathering and compression–Antero Resources	$	202,459		337,120
Water handling–Antero Resources		117,532		161,535
Water handling–third party		50		—
Amortization of customer relationships		(10,315)		(35,211)
Total revenue		309,726		463,444
Operating expenses:
Direct operating		78,980		90,795
General and administrative (including $32,966 and $6,035 of equity-based compensation in 2019 and 2020, respectively)		54,431		25,959
Facility idling		—		11,153
Impairment of goodwill		—		575,461
Impairment of property and equipment		594		89,083
Depreciation		44,097		55,088
Accretion and change in fair value of contingent acquisition consideration		3,346		—
Accretion of asset retirement obligations		79		103
Loss on asset sale		—		240
Total operating expenses		181,527		847,882
Operating income (loss)		128,199		(384,438)
Interest expense, net		(37,738)		(72,942)
Equity in earnings of unconsolidated affiliates		16,503		40,024
Income (loss) before income taxes		106,964		(417,356)
Provision for income tax benefit (expense)		(28,042)		112,864
Net income (loss) and comprehensive income (loss)	$	78,922		(304,492)

Net income (loss) per share–basic and diluted	$	0.21		(0.63)

Weighted average common shares outstanding:
Basic		381,045		479,969
Diluted		382,026		479,969

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statement of Partners’ Capital and Stockholders’ Equity

Six Months Ended June 30, 2019

(Unaudited)

(In thousands)


	Common
	Shares
	Representing
	Limited										Additional
	Partner		Series B		Preferred		Common Stock				Paid-In		Accumulated		Total
	Interests		Unitholders		Stock		Shares		Amount		Capital		Earnings		Equity
Balance at December 31, 2018	$	(41,969)		72,830		—		—	$	—		—		—		30,861
Distributions to unitholders		(30,543)		(3,720)		—		—		—		—		—		(34,263)
Net (loss) and comprehensive (loss) pre-acquisition		(13,549)		—		—		—		—		—		—		(13,549)
Equity-based compensation pre-acquisition		7,034		—		—		—		—		—		—		7,034
Exchange of common shares for shares of common stock and cash consideration paid		79,027		(69,110)		—		506,641		5,066		4,002,898		—		4,017,881
Issuance of Series A non-voting perpetual preferred stock		—		—		—		—		—		—		—		—
Equity-based compensation post-acquisition		—		—		—		—		—		4,389		—		4,389
Net income and comprehensive income post-acquisition		—		—		—		—		—		—		23,197		23,197
Balance at March 31, 2019		—		—		—		506,641		5,066		4,007,287		23,197		4,035,550
Dividends to shareholders		—		—		—		—		—		(152,180)		—		(152,180)
Equity-based compensation		—		—		—		—		—		21,543		—		21,543
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes		—		—		—		206		2		(1,830)		—		(1,828)
Net income and comprehensive income		—		—		—		—		—		—		69,274		69,274
Balance at June 30, 2019	$	—		—		—		506,847	$	5,068		3,874,820		92,471		3,972,359

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2020

(Unaudited)

(In thousands)


							Additional		Accumulated
	Preferred		Common Stock				Paid-In		Income		Total
	Stock		Shares		Amount		Capital		(Loss)		Equity
Balance at December 31, 2019	$	—		484,042	$	4,840		3,480,139		(341,565)		3,143,414
Dividends to stockholders		—		—		—		(149,014)		—		(149,014)
Equity-based compensation		—		—		—		3,338		—		3,338
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes		—		43		—		(26)		—		(26)
Repurchases and retirement of common stock		—		(4,700)		(46)		(15,778)		—		(15,824)
Net (loss) and comprehensive (loss)		—		—		—		—		(392,933)		(392,933)
Balance at March 31, 2020	$	—		479,385	$	4,794		3,318,659		(734,498)		2,588,955
Dividends to stockholders		—		—		—		(147,656)		—		(147,656)
Equity-based compensation		—		—		—		2,697		—		2,697
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes		—		311		4		(370)		—		(366)
Repurchases and retirement of common stock		—		(3,210)		(33)		(8,856)		—		(8,889)
Net income and comprehensive income		—		—		—		—		88,441		88,441
Balance at June 30, 2020	$	—		476,486	$	4,765		3,164,474		(646,057)		2,523,182

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2019 and 2020

(Unaudited)

(In thousands)


	Six Months Ended June 30,
	2019		2020
Cash flows provided by (used in) operating activities:
Net income (loss)	$	78,922		(304,492)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Distributions from Antero Midstream Partners LP, prior to the Transactions		43,492		—
Depreciation		44,097		55,088
Payment of contingent consideration in excess of acquisition date fair value		—		(34,342)
Accretion and change in fair value of contingent acquisition consideration		3,425		103
Impairment		594		664,544
Deferred income taxes		28,042		(56,408)
Equity-based compensation		32,966		6,035
Equity in earnings of unconsolidated affiliates		(16,503)		(40,024)
Distributions from unconsolidated affiliates		23,860		41,828
Amortization of customer relationships		10,315		35,211
Amortization of deferred financing costs		1,102		2,190
Settlement of asset retirement obligations		—		(601)
Loss on asset sale		—		240
Changes in assets and liabilities:
Accounts receivable–Antero Resources		38,414		24,941
Accounts receivable–third party		9		1,089
Income tax receivable		—		(17,547)
Other current assets		(1,867)		930
Accounts payable–Antero Resources		973		(432)
Accounts payable–third party		(4,629)		5,495
Income taxes payable		(15,370)		—
Accrued liabilities		(15,678)		(21,701)
Net cash provided by operating activities		252,164		362,147
Cash flows provided by (used in) investing activities:
Additions to gathering systems and facilities		(89,206)		(103,937)
Additions to water handling systems		(51,984)		(19,477)
Investments in unconsolidated affiliates		(103,409)		(21,988)
Cash received on acquisition of Antero Midstream Partners LP		619,532		—
Cash consideration paid to Antero Midstream Partners LP unitholders		(598,709)		—
Cash received in asset sale		—		123
Change in other assets		2,375		1,938
Net cash used in investing activities		(221,401)		(143,341)
Cash flows provided by (used in) financing activities:
Distributions to unitholders and dividends to stockholders		(182,625)		(296,395)
Distributions to Series B unitholders		(3,720)		—
Distributions to preferred stockholders		(98)		(275)
Repurchases of common stock		—		(24,713)
Issuance of senior notes		650,000		—
Payments of deferred financing costs		(6,952)		—
Borrowings (repayments) on bank credit facilities, net		(480,500)		195,500
Payment for contingent acquisition consideration		—		(90,658)
Employee tax withholding for settlement of equity compensation awards		(1,828)		(392)
Other		(71)		(111)
Net cash used in financing activities		(25,794)		(217,044)
Net increase in cash and cash equivalents		4,969		1,762
Cash and cash equivalents, beginning of period		2,822		1,235
Cash and cash equivalents, end of period	$	7,791		2,997
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	31,147		74,665
Cash refund received (paid) during the period for income taxes	$	(16,001)		38,910
Increase (decrease) in accrued capital expenditures and accounts payable for property and equipment	$	9,447		(3,461)

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2019 and June 30, 2020

(1) Organization

Antero Midstream Corporation was originally formed as Antero Resources Midstream Management LLC in 2013 to become the general partner of Antero Midstream Partners LP (“Antero Midstream Partners”). On May 4, 2017, Antero Resources Midstream Management LLC converted from a limited liability company to a limited partnership under the laws of the State of Delaware and changed its name to Antero Midstream GP LP (“AMGP”) in connection with its initial public offering. On March 12, 2019, pursuant to the Simplification Agreement, dated as of October 9, 2018, by and among AMGP, Antero Midstream Partners and certain of their affiliates (the “Simplification Agreement”), (i) AMGP was converted from a limited partnership to a corporation under the laws of the State of Delaware and changed its name to Antero Midstream Corporation (the “Conversion”), (ii) an indirect, wholly owned subsidiary of Antero Midstream Corporation was merged with and into Antero Midstream Partners, with Antero Midstream Partners surviving the merger as an indirect, wholly owned subsidiary of Antero Midstream Corporation (the “Merger”), and (iii) Antero Midstream Corporation exchanged (the “Series B Exchange” and, together with the Conversion, the Merger and the other transactions pursuant to by the Simplification Agreement, the “Transactions”) each issued and outstanding Series B Unit (the “Series B Units”) representing a membership interest in Antero IDR Holdings LLC (“IDR Holdings”) for 176.0041 shares of its common stock, par value $0.01 per share (“AM common stock”). As a result of the Transactions, Antero Midstream Partners became and is now a wholly owned subsidiary of Antero Midstream Corporation and former shareholders of AMGP, unitholders of Antero Midstream Partners, including Antero Resources Corporation (“Antero Resources”), and holders of Series B Units became owners of AM common stock. Unless the context otherwise requires, references to the “Company,” “we,” “us” or “our” refer to (i) for the period prior to March 13, 2019, AMGP and its consolidated subsidiaries, which did not include Antero Midstream Partners and its subsidiaries, and (ii) for the period beginning on March 13, 2019, Antero Midstream Corporation and its consolidated subsidiaries, including Antero Midstream Partners and its subsidiaries, including Antero Midstream LLC, Antero Water LLC (“Antero Water”), Antero Treatment LLC, and Antero Midstream Finance Corporation (“Finance Corp”).

We are a growth-oriented midstream company formed to own, operate and develop midstream energy infrastructure primarily to service Antero Resources and its production and completion activity in the Appalachian Basin’s Marcellus Shale and Utica Shale located in West Virginia and Ohio. Our assets consist of gathering pipelines, compressor stations, interests in processing and fractionation plants, and water handling assets. The Company, through Antero Midstream Partners and its affiliates, provides midstream services to Antero Resources under long-term contracts. The Company’s corporate headquarters are located in Denver, Colorado.

(2) Summary of Significant Accounting Policies

(a)

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information and should be read in the context of the Company’s December 31, 2019 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies. The Company’s December 31, 2019 consolidated financial statements were included in the Company’s 2019 Annual Report on Form 10-K, which was filed with the SEC.

These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Company’s financial position as of December 31, 2019 and June 30, 2020, the results of the Company’s operations for the three and six months ended June 30, 2019 and 2020, and its cash flows for the six months ended June 30, 2019 and 2020. The Company has no items of other comprehensive income (loss); therefore, net income (loss) is equal to comprehensive income (loss).

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

Certain costs of doing business incurred and charged to the Company by Antero Resources have been reflected in the accompanying unaudited condensed consolidated financial statements. These costs include general and administrative expenses provided to the Company by Antero Resources in exchange for:

●

business services, such as payroll, accounts payable and facilities management;

●

corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory policy; and

●

employee compensation, including equity-based compensation.

Transactions between the Company and Antero Resources have been identified in the unaudited condensed consolidated financial statements (see Note 6—Transactions with Affiliates).

(b)

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include (i) for the period prior to March 13, 2019, the accounts of AMGP and its consolidated subsidiaries, which did not include Antero Midstream Partners and its subsidiaries, and (ii) for the period beginning on March 13, 2019, the accounts of Antero Midstream Corporation and its consolidated subsidiaries, including Antero Midstream Partners and its subsidiaries, which were acquired in the Transactions. See Note 3—Business Combination. All significant intercompany accounts and transactions have been eliminated in the Company’s unaudited condensed consolidated financial statements.

(c)

Revenue Recognition

The Company, through Antero Midstream Partners and its affiliates, provides gathering, compression and water handling services under fee-based contracts primarily based on throughput or at cost plus a margin. Certain of these contracts contain operating leases of the Company’s assets under GAAP. Under these arrangements, the Company receives fees for gathering, compression services and water handling services. The revenue the Company earns from these arrangements is directly related to (i) in the case of natural gas gathering and compression, the volumes of metered natural gas that it gathers, compresses and delivers to natural gas compression sites or other transmission delivery points, (ii) in the case of fresh water services, the quantities of fresh water delivered to its customers for use in their well completion operations, (iii) in the case of wastewater treatment services performed by the Company prior to idling of the Clearwater Facility (as defined below) in September 2019, the quantities of wastewater treated for its customers, (iv) in the case of wastewater services provided by third parties, the third-party costs the Company incurs plus 3%, or (v) in the case of flowback and produced water treatment performed by the Company, a cost of service fee based on the costs incurred by the Company. The Company recognizes revenue when it satisfies a performance obligation by delivering a service to a customer or the use of leased assets to a customer. The Company includes lease revenue within revenues by service. See Note 7—Revenue.

(d)

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements and notes in conformity with GAAP requires that management formulate estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingent liabilities. Items subject to estimates and assumptions include the useful lives of property and equipment, the valuation of assets and liabilities acquired from Antero Midstream Partners, as well as the valuation of accrued liabilities, among others. Although management believes these estimates are reasonable, actual results could differ from these estimates.

(e)

Cash and Cash Equivalents

The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

(f)

Property and Equipment

Property and equipment primarily consists of gathering pipelines, compressor stations and the wastewater treatment facility and related landfill (collectively, the “Clearwater Facility”) previously used for the disposal of salt therefrom, other flowback and produced water treatment facilities, and fresh water delivery pipelines and facilities stated at historical cost less accumulated depreciation, amortization and impairment. The Company capitalizes construction-related direct labor and material costs. Maintenance and repair costs are expensed as incurred.

Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives and salvage values of assets. The depreciation of fixed assets recorded under operating lease agreements is included in depreciation expense. Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions, and supply and demand for the Company’s services in the areas in which it operates. When assets are placed into service, management makes estimates with respect to useful lives and salvage values that management believes are reasonable.

Amortization of landfill airspace consists of the amortization of landfill capital costs, including those that have been incurred and capitalized and estimated future costs for landfill development and construction, and the amortization of asset retirement costs arising from landfill final capping, closure, and post-closure obligations. Amortization expense is recorded on a units-of-consumption basis, applying cost as a rate per-cubic yard. The rate per-cubic yard is calculated by dividing each component of the amortizable basis of the landfill by the number of cubic yards needed to fill the corresponding asset’s airspace. Landfill capital costs and closure and post-closure asset retirement costs are generally incurred to support the operation of the landfill over its entire operating life and are, therefore, amortized on a per-cubic yard basis using a landfill’s total airspace capacity. Estimates of disposal capacity and future development costs are created using input from independent engineers and internal technical teams and are reviewed at least annually.

The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable. Generally, the basis for making such assessments is undiscounted future cash flow projections for the assets being assessed. If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair values, which are based on discounted future cash flows using assumptions as to revenues, costs, and discount rates typical of third-party market participants, which is a Level 3 fair value measurement. The Company recognized an impairment with respect to the freshwater delivery system during the six months ended June 30, 2020.

(g)

Asset Retirement Obligations

The Company’s asset retirement obligations include its obligation to close, maintain, and monitor landfill cells and support facilities. After the entire landfill reaches capacity and is certified closed, the Company must continue to maintain and monitor the landfill for a post-closure period, which generally extends for 30 years. The Company records the fair value of its landfill retirement obligations as a liability in the period in which the regulatory obligation to retire a specific asset is triggered. For the Company’s individual landfill cells, the required closure and post-closure obligations under the terms of its permits and its intended operation of the landfill cell are triggered and recorded when the cell is placed into service and salt is initially disposed in the landfill cell. The fair value is based on the total estimated costs to close the landfill cell and perform post-closure activities once the landfill cell has reached capacity and is no longer accepting salt. Retirement obligations are increased each year to reflect the passage of time by accreting the balance at the weighted average credit-adjusted risk-free rate that is used to calculate the recorded liability, with accretion charged to direct costs. Actual cash expenditures to perform closure and post-closure activities reduce the retirement obligation liabilities as incurred. After initial measurement, asset retirement obligations are adjusted at the end of each period to reflect changes, if any, in the estimated future cash flows underlying the obligation. Landfill retirement assets are capitalized as the related retirement obligations are incurred, and are amortized on a units-of-consumption basis as the disposal capacity is consumed.

Asset retirement obligations are recorded for fresh water impoundments and waste water pits when an abandonment date is identified. The Company records the fair value of its freshwater impoundment and waste water pit retirement obligations as liabilities in the period in which the regulatory obligation to retire a specific asset is triggered. The fair value is based on the total reclamation costs of the assets. Retirement obligations are increased each year to reflect the passage of time by accreting the balance at the

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

weighted average credit-adjusted risk-free rate that is used to calculate the recorded liability, with accretion charged to direct costs. Actual cash expenditures to perform remediation activities reduce the retirement obligation liabilities as incurred. After initial measurement, asset retirement obligations are adjusted at the end of each period to reflect changes, if any, in the estimated future cash flows underlying the obligation. Fresh water impoundments and wastewater pit retirement assets are capitalized as the related retirement obligations are incurred, and are amortized on a straight-line basis until reclamation.

The Company is under no legal obligations, neither contractually nor under the doctrine of promissory estoppel, to restore or dismantle its gathering pipelines, compressor stations, water delivery pipelines, flowback and produced water facilities and the Clearwater Facility upon abandonment. See Note 4—Clearwater Facility Idling.

(h)

Equity-Based Compensation

The Company’s unaudited condensed consolidated financial statements include equity-based compensation costs related to awards granted by its own plans, as in place before and after the Transactions, as well as costs allocated by Antero Resources for grants made prior to the Transactions. Costs allocated from Antero Resources are offset to additional paid in capital on the unaudited condensed consolidated balance sheet. See Note 6—Transactions with Affiliates for additional information regarding Antero Resources’ allocation of expenses to the Company. For awards granted under its own plan, the Company recognizes compensation cost related to all equity-based awards in the financial statements based on the estimated grant date fair value. The Company is authorized to grant various types of equity-based compensation awards, including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, dividend equivalent awards and other types of awards. The grant date fair values of such awards are determined based on the type of award and may utilize market prices on the date of grant, Black-Scholes option-pricing model, Monte Carlo simulations or other acceptable valuation methodologies, as appropriate for the type of equity-based award. Compensation cost is recognized ratably over the applicable vesting or service period. Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period. See Note 11—Equity-Based Compensation.

(i)

Income Taxes

The Company recognizes deferred tax assets and liabilities for temporary differences resulting from net operating loss carryforwards for income tax purposes and the differences between the financial statement and tax basis of assets and liabilities. The effect of changes in tax laws or tax rates is recognized in income during the period such changes are enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company regularly reviews its tax positions in each significant taxing jurisdiction during the process of evaluating its tax provision. The Company makes adjustments to its tax provision when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; and/or (ii) a tax position is effectively settled with a tax authority at a differing amount.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The CARES Act allows corporations with net operating losses (“NOLs”) incurred in 2018, 2019, and 2020 to carry back such NOLs to each of the five years preceding the year of the NOLs, beginning with the earliest year in which there was taxable income, and claim an income tax refund in the applicable carryback years. As a result of this NOLs carryback provision in the CARES Act, the Company was able to recognize an income tax refund receivable in March 2020 of $55 million, including $11 million in current income tax benefit and $44 million of previously recognized deferred income tax benefit. As of June 30, 2020, the Company had received $39 million of this refund.

(j)

Fair Value Measures

The Financial Accounting Standards Board (the “FASB”) ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., the initial recognition of asset retirement obligations and impairments of long-lived assets). The fair value is the price that

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

the Company estimates would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.

The carrying values on the unaudited condensed balance sheet of the Company’s cash and cash equivalents, accounts receivable—Antero Resources, accounts receivable—third party, other current assets, accounts payable—Antero Resources, accounts payable—third party, accrued liabilities and other current liabilities approximate fair values due to their short-term maturities. The assets and liabilities of Antero Midstream Partners were recorded at fair value as of the acquisition date, March 12, 2019 (see Note 3—Business Combination). Additionally, the Company uses certain fair valuation techniques in performing its goodwill impairment test described below and in determining the fair value of the freshwater delivery system, both of which were impaired in the first quarter of 2020.

(k)

Investments in Unconsolidated Affiliates

The Company uses the equity method to account for its investments in companies if the investment provides the Company with the ability to exercise significant influence over, but not control of, the operating and financial policies of the investee. The Company’s unaudited condensed consolidated net income (loss) includes the Company’s proportionate share of the net income or loss of such companies. The Company’s judgment regarding the level of influence over each equity method investee includes considering key factors such as the Company’s ownership interest, representation on the board of directors and participation in policy-making decisions of the investee and material intercompany transactions. See Note 15—Investments in Unconsolidated Affiliates.

(l)

Business Combinations

The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, with any remaining difference recorded as goodwill. For acquisitions, management engages an independent valuation specialist, as applicable, to assist with the determination of fair value of the assets acquired, liabilities assumed, and goodwill, based on recognized business valuation methodologies. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition, and not later than one year from the acquisition date, the Company will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the acquisition date. An adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period of the adjustment. Acquisition-related costs are expensed as incurred in connection with each business combination. See Note 3—Business Combination.

(m)

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business. Goodwill is not amortized, but rather is tested for impairment annually in the fourth quarter and when events or changes in circumstances indicate that the fair value of a reporting unit with goodwill has been reduced below its carrying value. The impairment test requires allocating goodwill and other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the carrying value of the reporting unit. The fair value is calculated using the expected present value of future cash flows method. Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates and future capital requirements. If the fair value of the reporting unit is less than the carrying value, including goodwill, the excess of the book value over the fair value of goodwill is charged to net income as an impairment expense.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

Amortization of intangible assets with definite lives is calculated using the straight-line method, which is reflective of the benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. If the sum of the expected undiscounted future cash flows related to the asset is less than the carrying amount of the asset, an impairment loss is recognized based on the fair value of the asset. See Note 4—Clearwater Facility Idling and Note 5—Goodwill and Intangibles.

(n)

Treasury Share Retirement

The Company periodically retires treasury shares acquired through share repurchases and returns those shares to the status of authorized but unissued. When treasury shares are retired, the Company’s policy is to allocate the excess of the repurchase price over the par value of shares acquired first, to additional paid-in capital, and then, to accumulated earnings. The portion allocable to additional paid-in capital is determined by applying a percentage, determined by dividing the number of shares to be retired by the number of shares outstanding, to the balance of additional paid-in capital as of retirement.

(3) Business Combination

On March 12, 2019, AMGP and Antero Midstream Partners completed the Transactions. The Transactions have been accounted for using the acquisition method of accounting with Antero Midstream Corporation identified as the acquirer of Antero Midstream Partners.

The components of the fair value of consideration transferred are as follows (in thousands):


Fair value of shares of AM common stock issued⁽¹⁾	$	4,017,881
Cash		598,709
Total fair value of consideration transferred	$	4,616,590

(1)

The fair value of each share of AM common stock issued in connection with the Transactions was determined to be $12.54, the closing price of AMGP common shares on March 12, 2019.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

The final purchase price allocation of the Transactions are summarized in the table below. The fair value of assets acquired and liabilities assumed at March 12, 2019, were as follows (in thousands):


Cash and cash equivalents	$	619,532
Accounts receivable–Antero Resources		142,312
Accounts receivable–third party		117
Other current assets		1,150
Property and equipment, net		3,371,427
Investments in unconsolidated affiliates		568,285
Customer relationships		1,567,000
Other assets, net		42,887
Total assets acquired		6,312,710

Accounts payable–Antero Resources		3,316
Accounts payable–third party		30,674
Accrued liabilities		87,021
Other current liabilities		537
Long-term debt		2,364,935
Contingent acquisition consideration		116,924
Other liabilities		8,524
Total liabilities assumed		2,611,931
Net assets acquired, excluding goodwill		3,700,779
Goodwill		915,811
Net assets acquired	$	4,616,590

All customer relationships are subject to amortization, which is recognized over a weighted-average period of 23 years for the remaining economic life of the relationship.

The purchase price allocation resulted in the recognition of $915 million of goodwill, including $575 million within the Company’s gathering and processing segment and $340 million of goodwill within its water handling segment. Substantially all of the goodwill is expected to be deductible for tax purposes. Goodwill represented the efficiencies realized with simplifying our corporate structure to own, operate and develop midstream energy infrastructure primarily to service Antero Resources. See Note 5—Goodwill and Intangibles.

The Company’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2019 include $6 million of acquisition-related costs associated with the Transactions. These costs were expensed as general and administrative costs.

(4) Clearwater Facility Idling

On September 18, 2019, the Company commenced a strategic evaluation of the Clearwater Facility, at which time such facility was idled. The Company expects the facility to continue to be idled for the foreseeable future. Accordingly, the Company performed an impairment analysis of the facility and determined: (i) to reduce the carrying value of the facility to its estimated salvage value, which included the land associated with the Clearwater Facility; (ii) the fair value of the goodwill assigned to the wastewater treatment reporting unit was less than its carrying value, resulting in an impairment charge to goodwill; and (iii) the customer relationships intangible asset was impaired. The following table shows the impairment charges for the year ended December 31, 2019 related to the Clearwater Facility (in thousands):

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020


Impairment of property and equipment	$	408,882
Impairment of goodwill		42,290
Impairment of customer relationships		11,871
Total impairment expense	$	463,043

The Company incurred $2.5 million and $11.2 million in facility idling costs for the care and maintenance of the Clearwater Facility during the three and six months ended June 30, 2020, respectively.

(5) Goodwill and Intangibles

The Company evaluates goodwill for impairment annually during the fourth quarter and whenever events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit with goodwill is less than its carrying amount. Significant assumptions used to estimate the reporting units’ fair value include the discount rate as well as estimates of future cash flows, which are impacted primarily by commodity prices and producer customers’ development plans (which impact volumes and capital requirements).

During the third quarter of 2019, the Company incurred impairment charges to the goodwill and customer relationships intangible asset associated with the Clearwater Facility, which is in the water handling segment. See Note 4—Clearwater Facility Idling.

During the fourth quarter of 2019, the Company incurred impairment charges of $298 million to its fresh water delivery and services reporting unit, which is in the water handling segment. This was primarily due to decreased water volumes driven by decreased drilling and increased use of water blending operations by Antero Resources. There was 0 goodwill remaining in this segment after this impairment was incurred.

During the first quarter of 2020, the Company performed an interim impairment analysis of the goodwill due to changes in Antero Resources’ drilling plans as a result of the decline in commodity prices. As a result of this evaluation, the Company impaired all remaining goodwill of $575 million associated with its gathering and processing segment in the first quarter of 2020.

All customer relationships are subject to amortization and are amortized over a weighted-average period of 23 years, which reflects the remaining economic life of the relationships. The changes in the carrying amount of customer relationships for the six months ended June 30, 2020 were as follows (in thousands):


Customer relationships as of December 31, 2019	$	1,498,119
Accumulated amortization		(35,211)
Customer relationships as of June 30, 2020	$	1,462,908

Future amortization expense is as follows (in thousands):


Remainder of year ending December 31, 2020	$	35,463
Year ending December 31, 2021		70,672
Year ending December 31, 2022		70,672
Year ending December 31, 2023		70,672
Year ending December 31, 2024		70,672
Year ending December 31, 2025		70,672
Thereafter		1,074,085
Total	$	1,462,908

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

(6) Transactions with Affiliates

(a)

Revenues

Substantially all revenues earned in the three and six months ended June 30, 2019 and 2020 were earned from Antero Resources, under various agreements for gathering and compression and water handling services. Revenues earned from gathering and processing services consists of lease income.

(b)

Accounts receivable—Antero Resources and Accounts payable—Antero Resources

Accounts receivable—Antero Resources represents amounts due from Antero Resources, primarily related to gathering and compression services and water handling services. Accounts payable—Antero Resources represents amounts due to Antero Resources for general and administrative and other costs.

(c)

Allocation of Costs Charged by Antero Resources

The employees supporting the Company’s operations are concurrently employed by Antero Resources and the Company. Direct operating expense includes costs charged to the Company of $1.9 million and $1.5 million during the three months ended June 30, 2019 and 2020, respectively, and $2.3 million and $3.5 million during the six months ended June 30, 2019 and 2020, respectively. These costs were for services provided by employees associated with the operation of the Company’s gathering lines, compressor stations, and water handling assets. General and administrative expense includes costs charged to the Company by Antero Resources of $11.8 million and $6.4 million during the three months ended June 30, 2019 and 2020, respectively, and $13.9 million and $12.8 million during the six months ended June 30, 2019 and 2020, respectively. These costs relate to: (i) various business services, including payroll processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and human resources and (iii) compensation, including certain equity-based compensation. These expenses are charged to the Company based on (i) the nature of the expenses and are apportioned based on a combination of the Company’s proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable, and (ii) an annual management services fee. The Company reimburses Antero Resources directly for all general and administrative costs charged to it. See Note 11—Equity-Based Compensation.

(7) Revenue

(a)

Revenue from Contracts with Customers

All of the Company’s revenues are derived from service contracts with customers and are recognized when the Company satisfies a performance obligation by delivering a service to a customer. The Company derives substantially all of its revenues from Antero Resources. The following sets forth the nature, timing of satisfaction of performance obligations, and significant payment terms of the Company’s contracts with Antero Resources.

Gathering and Compression Agreement

Pursuant to the gathering and compression agreement with Antero Resources, Antero Resources has dedicated substantially all of its current and future acreage in West Virginia, Ohio and Pennsylvania to the Company for gathering and compression services except for acreage subject to third-party commitments or pre-existing dedications. The Company also has an option to gather and compress natural gas produced by Antero Resources on any additional acreage it acquires during the term of the agreement outside of West Virginia, Ohio and Pennsylvania on the same terms and conditions. In December 2019, the Company and Antero Resources agreed to extend the initial term of the gathering and compression agreement to 2038 and established a growth incentive fee program whereby low pressure gathering fees will be reduced from 2020 through 2023 to the extent Antero Resources achieves certain volumetric targets at certain points during such time. Antero Resources achieved the volumetric targets the first and second quarters of 2020. For the three and six months ended June 30, 2020, the Company provided Antero Resources $12 million and $24 million in rebates, respectively. Upon completion of the initial contract term, the gathering and compression agreement will continue in effect

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180^th day prior to the anniversary of such effective date.

Under the gathering and compression agreement, the Company receives a low pressure gathering fee, a high pressure gathering fee and a compression fee, in each case subject to CPI-based adjustments. In addition, the agreement stipulates that the Company receives a reimbursement for the actual cost of electricity used at its compressor stations.

The Company determined that the gathering and compression agreement is an operating lease as Antero Resources obtains substantially all of the economic benefit of the asset and has the right to direct the use of the asset. The gathering system is an identifiable asset within the gathering and compression agreement, and it consists of underground low pressure pipelines that generally connect and deliver gas from specific well pads to compressor stations to compress the gas before delivery to underground high pressure pipelines that transport the gas to a third-party pipeline or plant. The gathering system is considered a single lease due to the interrelated network of the assets. The Company accounts for its lease and non-lease components as a single lease component as the lease component is the predominant component. The non-lease components consist of operating, oversight and maintenance of the gathering system, which are performed on time-elapsed measures. All lease payments under the future Minimum Volume Commitments discussed below are considered to be in-substance fixed lease payments under the gathering and compression agreement.

The Company recognizes revenue when low pressure volumes are delivered to a compressor station, compression volumes are delivered to a high pressure line and high pressure volumes are delivered to a processing plant or transmission pipeline. The Company invoices the customer the month after each service is performed, and payment is due in the same month.

Water Services Agreement

The Company is party to a water services agreement with Antero Resources, whereby the Company provides certain water handling services to Antero Resources within an area of dedication in defined service areas in West Virginia and Ohio. Upon completion of the initial term in 2035, the water services agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180^th day prior to the anniversary of such effective date. Under the agreement, the Company receives a fixed fee per barrel for fresh water deliveries by pipeline directly to the well site. Additionally, the Company receives a fixed fee per barrel for fresh water delivered by truck to high-rate transfer facilities. For flowback and produced water blending services, the Company receives a cost of service fee based on the costs incurred by the Company. Antero Resources also agreed to pay the Company a fixed fee per barrel for wastewater treatment at the Clearwater Facility, which was idled in the third quarter of 2019 and which the Company expects will remain idled for the foreseeable future. All such fees under the agreement are subject to annual CPI-based adjustments and additional fees based on certain costs.

Under the water services agreement, the Company may also contract with third parties to provide water services to Antero Resources. Antero Resources reimburses the Company for third-party out-of-pocket costs plus a 3% markup.

The Company satisfies its performance obligations and recognizes revenue when the fresh water volumes have been delivered to the hydration unit of a specified well pad, flowback and produced water blending services have been completed, or prior to the idling of the Clearwater Facility in September 2019, when the wastewater volumes were delivered to the Clearwater Facility. The Company invoices the customer the month after water services are performed, and payment is due in the same month. For services contracted through third-party providers, the Company’s performance obligation is satisfied when the service to be performed by the third-party provider has been completed. The Company invoices the customer after the third-party provider billing is received, and payment is due in the same month.

Minimum Volume Commitments

The gathering and compression agreement includes certain minimum volume commitment provisions. If and to the extent Antero Resources requests that the Company construct new high pressure lines and compressor stations, the gathering and compression agreement contains minimum volume commitments that require Antero Resources to utilize or pay for 75% of the

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

gathering capacity and 70% of the compression capacity of such new construction for 10 years. The Company recognizes lease income from its minimum volume commitments under its gathering and compression agreement on a straight-line basis and additional operating lease income is earned when excess volumes are delivered under the contract. The Company is not party to any leases that have not commenced. Minimum volume commitments for fresh water deliveries under the water services agreement concluded at December 31, 2019.

Minimum revenue amounts under the gathering and compression minimum volume commitments are as follows (in thousands):


Remainder of 2020	$	80,262
Year ending December 31, 2021		235,901
Year ending December 31, 2022		235,901
Year ending December 31, 2023		235,901
Year ending December 31, 2024		236,547
Year ending December 31, 2025		222,858
Thereafter		499,138
Total	$	1,746,508

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

(b)

Disaggregation of Revenue

In the following table, revenue is disaggregated by type of service and type of fee. The table also identifies the reportable segment to which the disaggregated revenues relate. For more information on reportable segments, see Note 16—Reporting Segments.


	Three Months Ended June 30,				Six Months Ended June 30,				Segment to which
(in thousands)	2019		2020		2019		2020		revenues relate
Revenue from contracts with customers
Type of service
Gathering—low pressure	$	78,807		85,791		94,634		166,939	Gathering and Processing⁽¹⁾
Gathering—low pressure rebate		—		(12,000)		—		(24,000)	Gathering and Processing⁽¹⁾
Gathering—high pressure		47,749		51,577		57,032		100,490	Gathering and Processing⁽¹⁾
Compression		42,369		48,623		50,793		93,691	Gathering and Processing⁽¹⁾
Fresh water delivery		43,429		36,900		54,204		102,718	Water Handling
Wastewater treatment		12,011		—		14,441		—	Water Handling
Other fluid handling		39,787		26,451		48,937		58,817	Water Handling
Amortization of customer relationships⁽²⁾		(2,402)		(9,239)		(2,903)		(18,477)	Gathering and Processing
Amortization of customer relationships⁽²⁾		(6,132)		(8,367)		(7,412)		(16,734)	Water Handling
Total	$	255,618		219,736		309,726		463,444

Type of contract
Per Unit Fixed Fee	$	168,925		185,991		202,459		361,120	Gathering and Processing⁽¹⁾
Gathering—low pressure rebate		—		(12,000)		—		(24,000)	Gathering and Processing⁽¹⁾
Per Unit Fixed Fee		55,440		36,900		68,645		102,718	Water Handling
Cost plus 3%		39,787		23,742		48,937		54,687	Water Handling
Cost of service fee		—		2,709		—		4,130	Water Handling
Amortization of customer relationships⁽²⁾		(2,402)		(9,239)		(2,903)		(18,477)	Gathering and Processing
Amortization of customer relationships⁽²⁾		(6,132)		(8,367)		(7,412)		(16,734)	Water Handling
Total	$	255,618		219,736		309,726		463,444

(1)	Revenue related to the gathering and processing segment is classified as lease income related to the gathering system.

(2)	Fair value of customer contracts acquired as part of the Transactions discussed in Note 3—Business Combination.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

(c)

Transaction Price Allocated to Remaining Performance Obligations

The majority of the Company’s service contracts have a term greater than one year. As such, the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under the Company’s service contracts, each unit of product delivered to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

The remainder of the Company’s service contracts, which relate to contracts with third parties, are short-term in nature with a contract term of one year or less. Accordingly, the Company is not required to disclose the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

(d)

Contract Balances

Under the Company’s service contracts, the Company invoices customers after its performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s service contracts do not give rise to contract assets or liabilities. At December 31, 2019 and June 30, 2020, the Company’s receivables with customers were $101 million and $76 million, respectively.

(8) Property and Equipment

The Company’s investment in property and equipment for the periods presented is as follows:


	Estimated	December 31,		June 30,
(in thousands)	useful lives	2019		2020
Land	n/a	$	23,549		23,582
Gathering systems and facilities	40-50 years⁽¹⁾		2,375,241		2,577,408
Permanent buried pipelines and equipment	7-20 years		602,230		537,173
Surface pipelines and equipment	1-7 years		48,594		42,919
Landfill	n/a⁽²⁾		1,244		1,244
Heavy trucks and equipment	3-5 years		6,617		5,919
Above ground storage tanks	5-10 years		3,418		1,868
Construction-in-progress	n/a		300,165		163,575
Total property and equipment			3,361,058		3,353,688
Less accumulated depreciation			(87,648)		(104,045)
Property and equipment, net		$	3,273,410		3,249,643

(1)	Gathering systems and facilities are recognized as a single-leased asset with 0 residual value.

(2)	Amortization of landfill costs is recorded over the life of the landfill on a units-of-consumption basis.

Due to the decline in commodity prices and industry environment, the Company evaluated its assets for impairment during the first quarter of 2020. As a result of this evaluation, the Company recorded an impairment expense of $89 million, which included an $83 million impairment expense to its permanent buried pipelines and equipment and a $6 million impairment expense to its surface pipelines and equipment.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

(9) Long-Term Debt

The Company’s long-term debt as of December 31, 2019 and June 30, 2020 was as follows at:


			(Unaudited)
	December 31,		June 30,
(in thousands)	2019		2020
Credit Facility (a)	$	959,500		1,155,000
5.375% senior notes due 2024 (b)		652,600		652,600
5.75% senior notes due 2027 (c)		653,250		653,250
5.75% senior notes due 2028 (d)		650,000		650,000
Net unamortized debt issuance costs		(23,101)		(22,065)
Total long-term debt	$	2,892,249		3,088,785

(a)

Antero Midstream Partners Revolving Credit Facility

Antero Midstream Partners, an indirect, wholly owned subsidiary of Antero Midstream Corporation, as borrower (the “Borrower”), has a senior secured revolving credit facility (the “Credit Facility”) with a consortium of banks. Lender commitments under the Credit Facility are currently $2.13 billion. At December 31, 2019, the Borrower had borrowings under the Credit Facility of $960 million with a weighted average interest rate of 3.15%. At June 30, 2020, the Borrower had borrowings under the Credit Facility of $1.2 billion with a weighted average interest rate of 1.69%. NaN letters of credit under the Credit Facility were outstanding at either December 31, 2019 or June 30, 2020. The maturity date of the facility is October 26, 2022. The Credit Facility includes fall away covenants and lower interest rates that are triggered if and when the Borrower is assigned an Investment Grade Rating (as defined in the Credit Facility).

The Credit Facility contains certain covenants including restrictions on indebtedness, and requirements with respect to leverage and interest coverage ratios. The Credit Facility permits distributions to the holders of the Borrower’s equity interests in accordance with the cash distribution policy previously adopted by the board of directors of the general partner of the Borrower, provided that no event of default exists or would be caused thereby, and only to the extent permitted by our organizational documents. The Borrower was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2019 and June 30, 2020.

Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable quarterly or, in the case of Eurodollar Rate Loans, at the end of the applicable interest period if shorter than six months. Interest is payable at a variable rate based on LIBOR or the base rate, determined by election at the time of borrowing, plus an applicable margin rate. Interest at the time of borrowing is determined with reference to the Borrower’s then-current leverage ratio subject to certain exceptions. Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from 0.25% to 0.375% (subject to certain exceptions) based on the leverage ratio then in effect.

(b)

5.375% Senior Notes Due 2024

On September 13, 2016, Antero Midstream Partners and its wholly owned subsidiary, Finance Corp (together with Antero Midstream Partners, the “Issuers”), issued $650 million in aggregate principal amount of 5.375% senior notes due September 15, 2024 (the “2024 Notes”) at par. The 2024 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2024 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2024 Notes is payable on March 15 and September 15 of each year. Antero Midstream Partners may redeem all or part of the 2024 Notes at any time at redemption prices ranging from 104.031% as of June 30, 2020 to 100.00% on or after September 15, 2022. If Antero Midstream Partners undergoes a change of control followed by a rating decline, the holders of the 2024 Notes will have the right to require Antero Midstream Partners to repurchase all or a portion of the 2024 Notes at a price equal to 101% of the principal amount of the 2024 Notes, plus accrued and unpaid interest.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

(c)

5.75% Senior Notes Due 2027

On February 25, 2019, the Issuers issued $650 million in aggregate principal amount of 5.75% senior notes due March 1, 2027 (the “2027 Notes”) at par. The 2027 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2027 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2027 Notes is payable on March 1 and September 1 of each year. Antero Midstream Partners may redeem all or part of the 2027 Notes at any time on or after March 1, 2022 at redemption prices ranging from 102.875% on or after March 1, 2022 to 100.00% on or after March 1, 2025. In addition, prior to March 1, 2022, Antero Midstream Partners may redeem up to 35% of the aggregate principal amount of the 2027 Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.75% of the principal amount of the 2027 Notes, plus accrued and unpaid interest. At any time prior to March 1, 2022, Antero Midstream Partners may also redeem the 2027 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2027 Notes plus a “make-whole” premium and accrued and unpaid interest. If Antero Midstream Partners undergoes a change of control followed by a rating decline, the holders of the 2027 Notes will have the right to require Antero Midstream Partners to repurchase all or a portion of the 2027 Notes at a price equal to 101% of the principal amount of the 2027 Notes, plus accrued and unpaid interest.

(d)

5.75% Senior Notes Due 2028

On June 28, 2019, the Issuers issued $650 million in aggregate principal amount of 5.75% senior notes due January 15, 2028 (the “2028 Notes”) at par. The 2028 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2028 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2028 Notes is payable on January 15 and July 15 of each year. Antero Midstream Partners may redeem all or part of the 2028 Notes at any time on or after January 15, 2023 at redemption prices ranging from 102.875% on or after January 15, 2023 to 100.00% on or after January 15, 2026. In addition, prior to January 15, 2023, Antero Midstream Partners may redeem up to 35% of the aggregate principal amount of the 2028 Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.75% of the principal amount of the 2028 Notes, plus accrued and unpaid interest. At any time prior to January 15, 2023, Antero Midstream Partners may also redeem the 2028 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium and accrued and unpaid interest. If Antero Midstream Partners undergoes a change of control followed by a rating decline, the holders of the 2028 Notes will have the right to require Antero Midstream Partners to repurchase all or a portion of the 2028 Notes at a price equal to 101% of the principal amount of the 2028 Notes, plus accrued and unpaid interest.

(10) Accrued Liabilities

Accrued liabilities as of December 31, 2019 and June 30, 2020 consisted of the following items:


			(Unaudited)
	December 31,		June 30,
(in thousands)	2019		2020
Capital expenditures	$	27,427		16,284
Operating expenses		24,980		9,839
Interest expense		44,440		40,524
Other		7,341		5,637
Total accrued liabilities	$	104,188		72,284

(11) Equity-Based Compensation

The Company’s general and administrative expenses include equity-based compensation costs related to the Antero Midstream GP LP Long-Term Incentive Plan (“AMGP LTIP”) and the Series B Units prior to the Transactions. Equity-based

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

compensation after the Transactions include (i) costs allocated to Antero Midstream Corporation by Antero Resources for grants made prior to the Transactions pursuant to the Antero Resources Corporation Long-Term Incentive Plan (the “AR LTIP”), (ii) costs related to the Antero Midstream Corporation Long-Term Incentive Plan (the “AM LTIP”) and (iii) the Exchanged B Units (as defined below). Antero Midstream Corporation’s portion of the equity-based compensation expense is included in general and administrative expenses, and recorded as a credit to the applicable classes of equity. Equity-based compensation expense allocated to Antero Midstream Corporation was $2.8 million for the period from March 13, 2019 to June 30, 2019. For the three and six months ended June 30, 2020, equity-based compensation allocated to Antero Midstream Corporation was $1.3 million and $3.2 million, respectively. For grants made prior to the Transactions, Antero Resources has total unamortized expense related to its various equity-based compensation plans that can be allocated to the Company of approximately $15 million as of June 30, 2020, which includes grants made under the Antero Midstream Partners Long Term Incentive Plan (the “AMP LTIP”) prior to the Transactions, which were converted into awards under the AM LTIP. A portion of this will be allocated to Antero Midstream Partners as it is amortized over the remaining service period of the related awards. Antero Midstream Corporation does not reimburse Antero Resources for noncash equity compensation allocated to it for awards issued under the AR LTIP.

Exchanged B Units

Upon Closing of the Transactions, each Series B Unit, vested and unvested, was exchanged for 176.0041 shares of AM common stock (the “Series B Exchange”). A total of 17,353,999 shares of the Company’s common stock were issued in exchange for the 98,600 Series B Units then outstanding (the “Exchanged B Units”). The Company recognized $18 million and $29 million of equity-based compensation expense related to the Series B awards for the three and six months ended June 30, 2019, respectively, including expenses recognized with respect to the Series B Units prior to the Closing of the Transactions and expenses recognized with respect to the Exchanged B Units following the closing of the Transactions through June 30, 2019. There were no forfeitures after the Series B Exchange was completed.

AMGP LTIP

The Company recognized expense of $0.2 million for the six months ended June 30, 2019. In connection with the Transactions, the AMGP LTIP was terminated on March 12, 2019. NaN expense was recognized for the three months ended June 30, 2019.

AM LTIP

The Company is authorized to grant up to 15,398,901 shares of AM common stock to employees and directors under the AM LTIP. The AM LTIP provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), dividend equivalents, other stock-based awards, cash awards and substitute awards. The terms and conditions of the awards granted are established by the compensation committee of the Board. As of June 30, 2020, a total of 12,840,630 shares were available for future grant under the AM LTIP. For the three and six months ended June 30, 2020, the Company recognized expense of $1.3 million and $2.7 million, respectively, related to these awards.

Restricted Stock Unit Awards

A summary of the restricted stock unit awards activity during the six months ended June 30, 2020 is as follows:


		Weighted
		Average		Aggregate
	Number of	grant date		intrinsic value
	units	fair value		(in thousands)
Total AM LTIP RSUs awarded and unvested—December 31, 2019	1,275,990	$	14.38	$	9,685
Granted	985,269	$	7.23
Vested	(454,933)	$	13.63
Forfeited	(47,367)	$	14.43
Total AM LTIP RSUs awarded and unvested—June 30, 2020	1,758,959	$	10.45	$	8,971

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

Intrinsic values are based on the closing price of the Company’s common shares on the referenced dates. At June 30, 2020, unamortized expense of $15 million related to the unvested RSUs is expected to be recognized over a weighted average period of approximately 2.1 years and the Company’s proportionate share will be allocated to it as it is recognized.

Performance Share Unit Awards Based on Return on Invested Capital

For the three and six months ended June 30, 2020, the Company recognized $78 thousand and $156 thousand, respectively, of expense related to performance share unit awards based on return of invested capital. For each of the three and six months ended June 30, 2019, the Company recognized $163 thousand of expense related to these awards.

As of June 30, 2020, there was $0.6 million of unamortized equity-based compensation expense related to unvested PSUs that is expected to be recognized over a weighted average period of 1.8 years.

Cash Awards

In January 2020, the Company granted cash awards of $2.2 million to certain executives under the AM LTIP that vest ratably over a period of up to three years. As of June 30, 2020, the Company has accrued $0.8 million in Other liabilities in the unaudited condensed consolidated balance sheet.

(12) Cash Distributions and Dividends

The following table details the amount of distributions and dividends paid with respect to the quarter indicated (in thousands, except per share data):


					Distributions/
Quarter			Distributions/		Dividends
and Year	Record Date	Distribution Date	Dividends		per share
Q4 2018	February 1, 2019	February 21, 2019	$	30,543	$	0.164
Q1 2019	April 26, 2019	May 8, 2019		152,082	$	0.3025
Q1 2019	May 15, 2019	May 15, 2019		98		*
Q2 2019	July 26, 2019	August 7, 2019		154,146	$	0.3075
Q2 2019	August 14, 2019	September 18, 2019		138		*
Q3 2019	November 1, 2019	November 13, 2019		153,033	$	0.3075
Q3 2019	November 14, 2019	November 14, 2019		138		*
**	December 31, 2019	December 31, 2019		2,299		**
	Total 2019		$	492,477

Q4 2019	January 31, 2020	February 12, 2020	$	148,876	$	0.3075
*	February 14, 2020	February 14, 2020		138		*
Q1 2020	April 30, 2020	May 12, 2020		147,519	$	0.3075
*	May 15, 2020	May 15, 2020		137		*
	Total 2020		$	296,670

*	Dividends are paid in accordance with the terms of the Series A Preferred Stock as discussed in Note 13—Equity and Earnings Per Common Share.

**	Distributions declared on unvested Series B Units prior to the closing date of the Transactions that were paid upon the vesting date to the holders of the Exchanged B Units.

On July 15, 2020, the Board announced the declaration of a cash dividend on the shares of AM common stock of $0.3075 per share for the quarter ended June 30, 2020. The dividend will be payable on August 12, 2020 to stockholders of record as of July 30, 2020. The Company pays dividends (i) out of surplus or (ii) if there is no surplus, out of the net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year, as provided under Delaware law.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

The Board also declared a cash dividend of $138 thousand on the shares of Series A Preferred Stock of Antero Midstream Corporation to be paid on August 14, 2020 in accordance with the terms of the Series A Preferred Stock, which are discussed in Note 13—Equity and Earnings Per Common Share. As of June 30, 2020, there were dividends in the amount of $69 thousand accumulated in arrears on the Company’s Series A Preferred Stock.

(13) Equity and Earnings Per Common Share

(a)

Preferred Stock

The Board authorized 100,000,000 shares of preferred stock in connection with the closing of the Transactions (see Note 3—Business Combination) on March 12, 2019, and issued 10,000 shares of preferred stock designated as "5.5% Series A Non-Voting Perpetual Preferred Stock" (the "Series A Preferred Stock"), to The Antero Foundation on that date. Dividends on the Series A Preferred Stock are cumulative from the date of original issue and payable in cash on the 45^th day following the end of each fiscal quarter, or such other dates as the Board will approve, at a rate of 5.5% per annum on (i) the liquidation preference per share of Series A Preferred Stock (as described below) and (ii) the amount of accrued and unpaid dividends for any prior dividend period on such share of Series A Preferred Stock, if any. At any time following the date of issue, in the event of a change of control, or at any time on or after March 12, 2029, the Company may redeem the Series A Preferred Stock at a price equal to $1,000 per share, plus any accrued and unpaid dividends, payable in cash; provided that if any shares of the Series A Preferred Stock are held by The Antero Foundation at the time of such redemption, the price for redemption of each share of Series A Preferred Stock will be the greater of (i) $1,000 per share, plus any accrued but unpaid dividends, and (ii) the fair market value of the Series A Preferred Stock. On or after March 12, 2029, the holder of each share of Series A Preferred Stock (other than The Antero Foundation) may convert such shares, at any time and from time to time, at the option of the holder into a number of shares of AM common stock equal to the conversion ratio in effect on the applicable conversion date, subject to certain limitations. The Series A Preferred Stock ranks senior to the AM common stock as to dividend rights, as well as with respect to rights upon liquidation, winding-up or dissolution of the Company. Holders of the Series A Preferred Stock do not have any voting rights in the Company, except as required by law, or any preemptive rights.

(b)

Weighted Average Shares Outstanding

The following is a reconciliation of the Company’s basic weighted average shares outstanding to diluted weighted average shares outstanding during the periods presented:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2019		2020		2019		2020
Basic weighted average number of shares outstanding		506,816		476,836		381,045		479,969
Add: Dilutive effect of restricted stock units		78		40		108		—
Add: Dilutive effect of Series A preferred stock		873		1,961		873		—
Diluted weighted average number of shares outstanding		507,767		478,837		382,026		479,969

Weighted average number of outstanding equity awards excluded from calculation of diluted earnings per common share^(1):
Restricted stock units		—		—		—		77
Preferred shares		—		—		—		1,961

⁽¹⁾	The potential dilutive effects of these awards were excluded from the computation of earnings (loss) per common shares—assuming dilution because the inclusion of these awards would have been anti-dilutive.

(c)

Earnings Per Common Share

Earnings per common share—basic for each period is computed by dividing net income (loss) attributable to Antero Midstream Corporation by the basic weighted average number of shares of AM common stock outstanding during the period.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

Earnings per common share—assuming dilution for each period is computed after giving consideration to the potential dilution from outstanding equity awards, calculated using the treasury stock method. During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is anti-dilutive.


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2019		2020		2019		2020
Net income (loss)	$	69,274		88,441		78,922		(304,492)
Less preferred stock dividends		(139)		(137)		(168)		(275)
Net income (loss) available to common shareholders	$	69,135		88,304		78,754		(304,767)

Net income (loss) per share–basic	$	0.14		0.19		0.21		(0.63)
Net income (loss) per share–diluted	$	0.14		0.18		0.21		(0.63)

Weighted average common shares outstanding–basic		506,816		476,836		381,045		479,969
Weighted average common shares outstanding–diluted		507,767		478,837		382,026		479,969

(14) Fair Value Measurement

Business Combination

As the Transactions were accounted for under the acquisition method of accounting, the Company estimated the fair value of assets acquired and liabilities assumed at March 12, 2019. See Note 3—Business Combination. In connection with the Transactions, the Company, among other things, issued shares of common stock valued at the closing market price of the common shares at the effective time of the Transactions, which was a Level 1 measurement.

The Company used the discounted cash flow approach, which is an income statement technique, to estimate the fair value of the customer relationships and investments in unconsolidated affiliates using a weighted-average cost of capital of 14.1% as of March 12, 2019, which is based on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy. The Company also used this approach in combination with the cost approach to estimate the fair value of property and equipment whereby certain property and equipment was adjusted for recent purchases of similar items, economic and functional obsolescence, location, normal useful lives, and capacity (if applicable). To estimate the fair value of the long-term debt, the Company used Level 2 market data inputs.

Goodwill

The Company estimated the fair value of its assets in performing its goodwill analysis in the first quarter of 2020. The Company utilized a combination of approaches to discounted cash flow approach, comparable company method and the market value approach. The Company used a weighted-average cost of capital of 18.0% as of March 31, 2020, which is based on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy.

Property and equipment

The Company estimated the undiscounted future cash flow projections to assess its property and equipment for impairment. The carrying values of certain freshwater permanent buried pipelines and equipment and fresh water surface pipelines and equipment were deemed not recoverable. As a result, the carrying values have been reduced to the estimated fair values, which are based on discounted future cash flows using assumptions as to revenues, costs, and a discount rate typical of third-party market participants of 19.0% at March 31, 2020, which is a Level 3 fair value measurement within the fair value hierarchy.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

Contingent Acquisition Consideration

In connection with Antero Resources’ contribution of Antero Water and certain water handling assets to Antero Midstream Partners in September 2015 (the “Water Acquisition”), Antero Midstream Partners agreed to pay Antero Resources (a) $125 million in cash if Antero Midstream Partners delivered 176,295,000 barrels or more of fresh water during the period between January 1, 2017 and December 31, 2019 and (b) an additional $125 million in cash if Antero Midstream Partners delivers 219,200,000 barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020. This contingent consideration liability is valued based on Level 3 inputs related to expected average volumes and weighted average cost of capital.

In January 2020, Antero Midstream Partners paid Antero Resources $125 million and, as of June 30, 2020, no additional contingent acquisition consideration is expected to be earned. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy.

Senior Unsecured Notes

As of June 30, 2020 the fair value of the Company’s 2024 Notes, 2027 Notes and 2028 Notes was approximately $553 million, $520 million and $517 million, respectively, based on Level 2 market data inputs.

Other Assets and Liabilities

The carrying values of accounts receivable and accounts payable at December 31, 2019 and June 30, 2020 approximated fair value because of their short-term nature. The carrying value of the amounts under the Credit Facility at December 31, 2019 and June 30, 2020 approximated fair value because the variable interest rates are reflective of current market conditions.

(15) Investments in Unconsolidated Affiliates

Investment in Antero Midstream Partners

Prior to the closing of the Transactions, AMGP did not consolidate Antero Midstream Partners, and AMGP’s share of Antero Midstream Partners’ earnings as a result of AMGP’s ownership of the IDRs was accounted for using the equity method of accounting. AMGP recognized distributions earned from Antero Midstream Partners as “Equity in earnings of unconsolidated affiliates” on its statement of operations in the period in which they were earned and were allocated to AMGP’s capital account. AMGP’s long-term interest in the IDRs on the balance sheet was recorded in “Investment in unconsolidated affiliates.” The ownership of the general partner interests and IDRs did not provide AMGP with any claim to the assets of AMGP other than the balance in its Antero Midstream Partners capital account. Income related to the IDRs was recognized as earned and increased AMGP’s capital account and equity investment. When these distributions were paid to AMGP, they reduced its capital account and its equity investment in Antero Midstream Partners. As a result of the Transactions, Antero Midstream Corporation assumed financial control of Antero Midstream Partners and Antero Midstream Partners is now consolidated (see Note 3—Business Combination).

Investment in Stonewall and MarkWest Joint Venture

The Company has a 15% equity interest in a gathering system of Stonewall Gas Gathering LLC (“Stonewall”), which operates a 67-mile pipeline on which Antero Resources is an anchor shipper.

The Company has a 50% equity interest in the joint venture (the “Joint Venture”) to develop processing and fractionation assets with MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of MPLX, LP. The Joint Venture was formed to develop processing and fractionation assets in Appalachia. MarkWest operates the Joint Venture assets, which consist of processing plants in West Virginia and a one-third interest in 2 MarkWest fractionators in Ohio.

The Company’s net income (loss) includes its proportionate share of the net income of the Joint Venture and Stonewall. When the Company records its proportionate share of net income, it increases equity income in the unaudited condensed consolidated statements of operations and comprehensive income and the carrying value of that investment on its balance sheet. When distributions

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

on the Company’s proportionate share of net income are received, they are recorded as reductions to the carrying value of the investment on the balance sheet and are classified as cash inflows from operating activities in accordance with the nature of the distribution approach under ASC 230. The Company uses the equity method of accounting to account for its investments in Stonewall and the Joint Venture because it exercises significant influence, but not control, over the entities. The Company’s judgment regarding the level of influence over its equity investments includes considering key factors such as its ownership interest, representation on the applicable board of directors and participation in policy-making decisions of Stonewall and the Joint Venture.

The following table is a reconciliation of the Company’s investments in these unconsolidated affiliates:


	Antero						Total Investment
	Midstream				MarkWest		in Unconsolidated
(in thousands)	Partners LP		Stonewall			Joint Venture	Affiliates
Balance at December 31, 2018	$	43,492		—		—		43,492
Distributions from unconsolidated affiliates		(43,492)		—		—		(43,492)
Balance at March 12, 2019		—		—		—		—
Investments in unconsolidated affiliates acquired from Antero Midstream Partners		—		142,071		426,214		568,285
Additional Investments		—		—		154,359		154,359
Equity in net income of unconsolidated affiliates⁽¹⁾		—		4,117		47,198		51,315
Distributions from unconsolidated affiliates		—		(5,730)		(58,590)		(64,320)
Balance at December 31, 2019		—		140,458		569,181		709,639
Additional investments		—		—		21,988		21,988
Equity in net income of unconsolidated affiliates⁽¹⁾		—		3,160		36,864		40,024
Distributions from unconsolidated affiliates		—		(4,485)		(37,343)		(41,828)
Balance at June 30, 2020	$	—		139,133		590,690		729,823

⁽¹⁾	As adjusted for the amortization of the difference between the cost of the equity investments in Stonewall and the Joint Venture and the amount of the underlying equity in the net assets of Stonewall and the Joint Venture as of the date of the Transactions.

(16) Reporting Segments

Prior to the closing of the Transactions, AMGP had no reporting segment results. Following the completion of the Transactions, the Company’s operations, which are located in the United States, are organized into 2 reporting segments: (i) gathering and processing and (ii) water handling.

Gathering and Processing

The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and process production from Antero Resources’ wells in West Virginia and Ohio. The gathering and processing segment also includes equity in earnings from the Company’s investments in the Joint Venture and Stonewall.

Water Handling

The Company’s water handling segment includes 2 independent systems that deliver fresh water from sources including the Ohio River, local reservoirs and several regional waterways. The water handling segment also includes the Clearwater Facility that was placed in service in 2018 and idled in September 2019 (See Note 4—Clearwater Facility Idling), as well as other fluid handling services, which includes high rate transfer, wastewater transportation, disposal and treatment. See Note 8—Property and Equipment.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020

These segments are monitored separately by management for performance and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Management evaluates the performance of the Company’s business segments based on operating income. Interest expense is primarily managed and evaluated on a consolidated basis.

The summarized operating results and assets of the Company’s reportable segments were as follows for the three and six months ended June 30, 2019 and 2020:


	Gathering and		Water				Consolidated
(in thousands)	Processing		Handling		Unallocated ⁽¹⁾		Total
Three months ended June 30, 2019
Revenues:
Revenue–Antero Resources	$	168,925		95,181		—		264,106
Revenue–third-party		—		46		—		46
Amortization of customer contracts		(2,402)		(6,132)		—		(8,534)
Total revenues		166,523		89,095		—		255,618

Operating expenses:
Direct operating		12,377		51,621		—		63,998
General and administrative (excluding equity-based compensation)		7,335		3,958		1,786		13,079
Equity-based compensation		2,286		926		18,331		21,543
Impairment of property and equipment		592		2		—		594
Depreciation		12,721		23,726		—		36,447
Accretion and change in fair value of contingent acquisition consideration		—		2,297		—		2,297
Accretion of asset retirement obligations		—		69		—		69
Total expenses		35,311		82,599		20,117		138,027
Operating income	$	131,212		6,496		(20,117)		117,591

Equity in earnings of unconsolidated affiliates	$	13,623		—		—		13,623
Total assets	$	4,916,854		1,844,385		7,770		6,769,009
Additions to property and equipment	$	81,529		43,656		—		125,185

(1)	Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020


	Gathering and		Water				Consolidated
(in thousands)	Processing		Handling		Unallocated ⁽¹⁾		Total
Three months ended June 30, 2020
Revenues:
Revenue–Antero Resources	$	173,991		63,351		—		237,342
Amortization of customer relationships		(9,239)		(8,367)		—		(17,606)
Total revenues		164,752		54,984		—		219,736

Operating expenses:
Direct operating		14,059		28,008		—		42,067
General and administrative (excluding equity-based compensation)		5,440		2,694		1,591		9,725
Facility idling		—		2,475		—		2,475
Equity-based compensation		2,266		431		—		2,697
Depreciation		14,406		13,339		—		27,745
Accretion of asset retirement obligations		—		61		—		61
Loss on asset sale		—		240		—		240
Total expenses		36,171		47,248		1,591		85,010
Operating income	$	128,581		7,736		(1,591)		134,726

Equity in earnings of unconsolidated affiliates	$	20,947		—		—		20,947
Total assets	$	4,387,102		1,149,355		178,598		5,715,055
Additions to property and equipment	$	49,278		6,153		—		55,431

(1)	Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020


	Gathering and		Water				Consolidated
(in thousands)	Processing		Handling		Unallocated ⁽¹⁾		Total
Six months ended June 30, 2019
Revenues:
Revenue–Antero Resources	$	202,459		117,532		—		319,991
Revenue–third-party		—		50		—		50
Amortization of customer relationships		(2,903)		(7,412)		—		(10,315)
Total revenues		199,556		110,170		—		309,726

Operating expenses:
Direct operating		15,312		63,668		—		78,980
General and administrative (excluding equity-based compensation)		8,355		4,532		8,578		21,465
Equity-based compensation		2,663		1,139		29,164		32,966
Impairment of property and equipment		592		2		—		594
Depreciation		15,281		28,816		—		44,097
Accretion and change in fair value of contingent acquisition consideration		—		3,346		—		3,346
Accretion of asset retirement obligations		—		79		—		79
Total operating expenses		42,203		101,582		37,742		181,527
Operating income	$	157,353		8,588		(37,742)		128,199

Equity in earnings of unconsolidated affiliates	$	16,503		—		—		16,503
Total assets	$	4,916,854		1,844,385		7,770		6,769,009
Additions to property and equipment	$	89,206		51,984		—		141,190

(1)	Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis.

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2019 and June 30, 2020


	Gathering and		Water				Consolidated
(in thousands)	Processing		Handling		Unallocated ⁽¹⁾		Total
Six months ended June 30, 2020
Revenues:
Revenue–Antero Resources	$	337,120		161,535		—		498,655
Amortization of customer relationships		(18,477)		(16,734)		—		(35,211)
Total revenues		318,643		144,801		—		463,444

Operating expenses:
Direct operating		27,450		63,345		—		90,795
General and administrative (excluding equity-based compensation)		10,484		5,599		3,841		19,924
Facility idling		—		11,153		—		11,153
Impairment of goodwill		575,461		—		—		575,461
Impairment of property and equipment		—		89,083		—		89,083
Equity-based compensation		4,799		986		250		6,035
Depreciation		27,456		27,632		—		55,088
Accretion of asset retirement obligations		—		103		—		103
Loss on asset sale		—		240		—		240
Total operating expenses		645,650		198,141		4,091		847,882
Operating loss	$	(327,007)		(53,340)		(4,091)		(384,438)

Equity in earnings of unconsolidated affiliates	$	40,024		—		—		40,024
Total assets	$	4,387,102		1,149,355		178,598		5,715,055
Additions to property and equipment, net	$	103,937		19,477		—		123,414

(1)	Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The information provided below supplements, but does not form part of, our unaudited condensed consolidated financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, please see “Item 1A. Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

On March 12, 2019, pursuant to the Simplification Agreement, dated as of October 9, 2018, by and among Antero Midstream Partners GP LP (“AMGP”), Antero Midstream Partners and certain of their affiliates (the “Simplification Agreement”), (i) AMGP was converted from a limited partnership to a corporation under the laws of the State of Delaware and changed its name to Antero Midstream Corporation, (ii) an indirect, wholly owned subsidiary of Antero Midstream Corporation was merged with and into Antero Midstream Partners, with Antero Midstream Partners surviving the merger as an indirect, wholly owned subsidiary of Antero Midstream Corporation (the “Merger”), and (iii) Antero Midstream Corporation exchanged (the “Series B Exchange” and, together with the Conversion, the Merger and the other transactions pursuant to the Simplification Agreement, the “Transactions”) each issued and outstanding Series B Unit (the “Series B Units”) representing a membership interest in Antero IDR Holdings LLC (“IDR Holdings”) for 176.0041 shares of its common stock, par value $0.01 per share (“AM common stock”).

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 fair value. As a result, the unaudited condensed consolidated statements of operations and comprehensive income and cash flows for the six months ended June 30, 2019 include the results of operations of Antero Midstream Partners and its subsidiaries commencing on March 13, 2019. Unless the context otherwise requires, references to the “Company,” “we,” “us,” or “our” refer to (i) for the period prior to March 13, 2019, AMGP and its consolidated subsidiaries, which did not include Antero Midstream Partners and its subsidiaries, and (ii) for the period beginning and after March 13, 2019, Antero Midstream Corporation and its consolidated subsidiaries, including Antero Midstream Partners and its subsidiaries.

Overview

We are a growth-oriented midstream energy company formed to own, operate and develop midstream energy assets to primarily service Antero Resources’ production and completion activity. We believe that our strategically located assets and our relationship with Antero Resources have allowed us to become a leading midstream energy company serving the Marcellus and Utica shale plays. Our assets consist of gathering pipelines, compressor stations, and interests in processing and fractionation plants that collect and process production from Antero Resources’ wells in the Marcellus and Utica Shales in West Virginia and Ohio. Our assets also include two independent fresh water delivery systems that deliver fresh water from the Ohio River and several regional waterways. These fresh water delivery systems consist of permanent buried pipelines, surface pipelines and fresh water storage facilitates, as well as pumping stations and impoundments to transport the fresh water throughout the pipelines. These services are provided by us directly or through third-parties with which we contract. Our assets also include other flowback and produced water treatment facilities that we use to provide water treatment services to Antero Resources.

Table of Contents

Recent Developments and Highlights

COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Governments have tried to slow the spread of the virus by imposing social distancing guidelines, travel restrictions and stay-at-home orders, which have caused a significant decrease in activity in the global economy and the demand for oil, and to a lesser extent, natural gas and NGLs. Also in March 2020, Saudi Arabia and Russia failed to agree to cut production of oil along with the Organization of the Petroleum Exporting Countries (“OPEC”), and Saudi Arabia significantly reduced the price at which it sells oil and announced plans to increase production, which contributed to a sharp drop in the price of oil. While OPEC, Russia and other allied producers reached an agreement in April 2020 to reduce production, oil prices have remained low. The imbalance between the supply of and demand for oil, as well as the uncertainty around the extent and timing of an economic recovery, have caused extreme market volatility and a substantial adverse effect on commodity prices.

As a midstream energy company, we are recognized as an essential business under various federal, state and local regulations related to the COVID-19 pandemic. We have continued to operate as permitted under these regulations while taking steps to protect the health and safety of our workers. We have implemented protocols to reduce the risk of an outbreak within our field operations, and these protocols have not reduced Antero Resources’ production and our throughput in a significant manner. A substantial portion of our non-field level employees continue to operate in remote work from home arrangements, and we have been able to maintain a consistent level of effectiveness through these arrangements, including maintaining our day-to-day operations, our financial reporting systems and our internal control over financial reporting.

Our midstream assets are located in West Virginia and Ohio to serve the production of natural gas, NGLs and oil in the Appalachian Basin, primarily by Antero Resources. Our operations support well completion and production operations for Antero Resources and as such, we are directly impacted by changes in Antero Resources’ operations. While Antero Resources has seen a decrease in the overall demand for its products, demand for natural gas and NGLs has not declined as much as demand for oil, and there has not been as substantial an oversupply of natural gas and NGLs as there has been of oil. Furthermore, the decrease in demand for oil has significantly reduced the number of rigs drilling for oil in the continental U.S. and, as a result, estimates of future gas supply associated with oil production have declined. Additionally, the restart of economic activity in Asia and Europe, coupled with lower refinery liquefied petroleum gas (“LPG”) production from refineries in the U.S., Europe, and Asia during the second quarter, provided support for international LPG prices relative to oil. Further, reductions in OPEC+ and North American oil production and the associated NGL volumes are expected to have a supportive effect on propane and butane prices through the remainder of 2020 and into 2021. During the three and six months ended June 30, 2020, all of our gathering, compression and processing revenues were derived from the production of natural gas.

Neither our nor Antero Resources’ supply chain has experienced any significant interruptions. The industry continues to experience storage capacity constraints for oil and certain NGL products, and Antero Resources may become subject to those constraints if it is not able to sell its production or certain components thereof, or enter into additional storage arrangements. The lack of a market or available storage for any one NGL product or oil could result in Antero Resources having to delay or discontinue well completions and commercial production or shut in production for other products as it has disclosed that it cannot curtail the production of individual products in a meaningful way without reducing the production of other products. Antero Resources has indicated that the potential impacts of these constraints may include partial shut-in of production, although it is not able to determine the extent of or for how long any shut-ins may occur. Antero Resources has also indicated that because some of its wells produce rich gas, which is processed, and some produce dry gas, which does not require processing, it has the ability to change the mix of products that it produces and wells that it completes to adjust its production to address takeaway capacity constraints for certain products. For example, Antero Resources has indicated that it has the ability to shut-in rich gas wells and still produce from its dry gas wells if processing or storage capacity of NGL products becomes further limited or constrained. Also, prior to the COVID-19 pandemic, Antero Resources had developed a diverse set of buyers and destinations, as well as in-field and off-site storage capacity for its condensate volumes. Since the outbreak of the pandemic, Antero Resources has expanded its customer base and its condensate storage capacity within the basin. However, any production curtailments or shut-ins by Antero Resources or our other customers will reduce throughput for our gathering and processing system. In addition, if our customers delay or discontinue drilling or completion activities, it will reduce the volumes of water that we handle and therefore revenues for our water distribution and handling business.

Table of Contents

In addition, Antero Resources announced in April 2020 that it had reduced its drilling and completion capital budget for 2020 by approximately 34% since the beginning of the year. Antero Resources continues to monitor its five-year drilling plan and has indicated it will make further revisions as appropriate. Reducing its 2020 capital budget may impact production levels in 2021 and forward to the extent fewer wells are brought online, which will directly impact our throughput and cash flows for the same time periods.

During the first quarter of 2020 and the two preceding quarters, we recognized various impairment charges related to certain freshwater delivery system assets and fully impaired our Clearwater Facility and goodwill. Additional impairment charges related to our assets may occur if we experience disruptions in operations, decreases in our revenues or other adverse effects of the COVID-19 pandemic.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The CARES Act allows corporations with net operating losses (“NOLs”) incurred in 2018, 2019, and 2020 to carry back such NOLs to each of the five years preceding the year of the NOLs, beginning with the earliest year in which there was taxable income, and claim an income tax refund in the applicable carryback years. As a result of this NOLs carryback provision in the CARES Act, we were able to recognize an income tax refund receivable in March 2020 of $55 million, including $11 million in current income tax benefit and $44 million of previously recognized deferred income tax benefit. As of June 30, 2020, we had received $39 million of this refund.

The COVID-19 pandemic, commodity market volatility and resulting financial market instability are variables beyond our control and may adversely impact our generation of funds from operating cash flows, distributions from unconsolidated affiliates, available borrowings under our Credit Facility and our ability to access the capital markets.

Financial Results as Reported

The financial results of the Company for the six months ended June 30, 2020 are not comparative to the six months ended June 30, 2019 due to the closing of the Transactions on March 12, 2019. The results for the six months ended June 30, 2019 are not reflective of the ongoing operations and financial results of the Company because the operating and financial results of Antero Midstream Partners are only included for the period from March 13, 2019 to June 30, 2019. Accordingly, in addition to presenting a discussion of Antero Midstream Corporation’s results of operations, we are also presenting Antero Midstream Corporation’s pro forma results of operations for the six months ended June 30, 2019, which give pro forma effect to the Transactions as if they had occurred on January 1, 2019. See additional discussion below regarding “—Items Affecting Comparability of our Financial Results.”

For the three months ended June 30, 2019 and 2020, we recognized net income of $69 million and $88 million, respectively. For the three months ended June 30, 2019 and 2020, we generated cash flows provided by operations of $183 million and $241 million, respectively.

For the six months ended June 30, 2019 and 2020, we recognized net income of $79 million and a net loss of $304 million for the six months ended June 30, 2020. For the six months ended June 30, 2019 and 2020, we generated cash flows from operations of $252 million and $362 million, respectively.

Dividends Declared

Our Board of Directors declared a cash dividend on the shares of AM common stock of $0.3075 per share for the quarter ended June 30, 2020. The dividend will be payable on August 12, 2020 to stockholders of record as of July 30, 2020. Our Board of Directors also declared a $138 thousand cash dividend on our shares of Series A Preferred Stock to be paid on August 14, 2020 in accordance with their terms, which are discussed in Note 13—Equity and Earnings Per Common Share.

2020 Capital Budget and Capital Spending

During 2020, we plan to expand our existing West Virginia and Ohio gathering, processing, water handling and fresh water delivery infrastructure to accommodate Antero Resources’ development plans. We announced a reduction to our 2020 capital budget to a range of $200 million to $215 million from our previously revised budget range of $210 million to $240 million. Antero Resources periodically reviews its capital expenditures and adjusts its budget and budget allocation based on commodity prices, operating cash flow and liquidity. Any additional adjustments to Antero Resources’ budget could result in further adjustments or reductions to our capital budget.

Table of Contents

Our budget assumes there will not be any material curtailments to Antero Resources’ production as a result of basin-wide condensate storage constraints or any other unforeseen events arising from the COVID-19 global health pandemic. A curtailment could result in a temporary reduction in throughput volumes and revenues for Antero Midstream. Antero Resources and Antero Midstream continue to work together to find solutions to mitigate the potential impacts of the decline in demand for oil and NGLs. In light of the uncertain market conditions impacting the energy industry, Antero Midstream will continue to evaluate its capital budget as well as the appropriate amount of capital that is returned to shareholders through dividends and share repurchases in order to maintain its financial profile.

For the six months ended June 30, 2020, our capital expenditures were approximately $145 million, including $93 million of expansion capital, $30 million of maintenance capital and $22 million of capital investment in the Joint Venture.

Growth Incentive Fee Program With Antero Resources

On December 8, 2019, we and Antero Resources amended the existing gathering and compression agreement to establish a growth incentive fee program whereby we agreed to provide quarterly fee reductions to Antero Resources from 2020 through 2023, contingent upon Antero Resources achieving volumetric growth targets on low pressure gathering. The compression, high pressure gathering and fresh water delivery fees payable to us were unchanged. In addition, we and Antero Resources agreed to extend the primary term of such agreement by an additional four years to November 10, 2038. The following table summarizes the low pressure gathering growth incentive targets through 2023. If actual low pressure volumes are below the lowest threshold for the respective period, Antero Resources will not receive a reduction in low pressure gathering fees.


	Low Pressure Gathering	Quarterly Fee
	Volume Growth Incentive	Reduction
	Targets (MMcf/d)	(in millions)
Calendar Year 2020
First Quarter	>2,700	$12
Second Quarter	>2,700	$12
Third Quarter	>2,800	$12
Fourth Quarter	>2,900	$12
Calendar Years 2021-2023
Threshold 1	>2,900 and <3,150	$12
Threshold 2	>3,150 and <3,400	$15.5
Threshold 3	>3,400	$19

For the three months ended June 30, 2020, Antero Resources delivered low pressure gathering volumes of 2,869 MMcf/d, which resulted in a fee reduction of $12 million during the period. For the six months ended June 30, 2020, we provided Antero Resources an aggregate of $24 million in fee reductions.

Credit Facility

We expect to fund our operations through borrowings under the Credit Facility, our operating cash flows and cash on our balance sheet. As of June 30, 2020, lender commitments under the Credit Facility were $2.13 billion, with a letter of credit sublimit of $150 million. At June 30, 2020, we had borrowings of $1.2 billion and no letters of credit outstanding under the Credit Facility. See “—Debt Agreements—Antero Midstream Partners Revolving Credit Facility” for a description of the Credit Facility.

Items Affecting Comparability of Our Financial Results

Our financial results for the six months ended June 30, 2020 discussed below are not comparable to our financial results for the six months ended June 30, 2019 primarily as a result of the Merger. The Merger was 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 acquired assets and liabilities of Antero Midstream Partners recorded at their estimated fair value. As such, effective March 12, 2019, Antero Midstream Corporation commenced consolidating Antero Midstream Partners and its subsidiaries in its condensed consolidated financial statements. As a result, the unaudited condensed consolidated statements of operations and comprehensive income and cash flows of Antero Midstream Corporation for the six months ended at June 30, 2020 includes the results of Antero Midstream Partners for the entire period. The historical unaudited condensed consolidated statements of operations and comprehensive income and cash flows for the six months ended June 30, 2019 only include the results of operations of Antero Midstream Partners and its subsidiaries

Table of Contents

for the period after March 12, 2019, prior to which they only included AMGP’s income from distributions made on the IDRs of Antero Midstream Partners and AMGP’s expenses, which were limited to general and administrative expenses and equity-based compensation of AMGP.

Accordingly, in addition to presenting a discussion of our results of operations as reported, we are also presenting our pro forma results of operations, which give effect to the adjustments described in Exhibit 99.1 to this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q 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 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.

Results of Operations as Reported

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2020

Revenue and Direct Operating Expenses. Revenues from Antero Resources and direct operating expenses reflect revenue and operating expenses generated by Antero Midstream Partners after the completion of the Transactions on March 12, 2019.

General and administrative expenses. General and administrative expenses (excluding equity-based compensation expense) decreased from $21 million for the six months ended June 30, 2019 to $20 million for the six months ended June 30, 2020. The decrease was primarily due to cost reduction efforts, partially offset by the inclusion of general and administrative expenses of Antero Midstream Partners after the completion of the Transactions on March 12, 2019. Equity-based compensation decreased from $33 million for the six months ended June 30, 2019 to $6 million for the six months ended June 30, 2020 due to the Exchanged B Units that were fully vested on December 31, 2019.

Impairment of goodwill expense. Impairment of goodwill expense of $575 million for the six months ended June 30, 2020 reflects an impairment of the goodwill that was associated with our gathering system due to declines in commodity prices and the industry environment. There was no impairment of goodwill for the six months ended June 30, 2019.

Impairment of property and equipment expense. Impairment of property and equipment expense of $0.6 million for the six months ended June 30, 2019 was primarily for the decommissioning of assets related to a third-party compressor station. Impairment of property and equipment expense of $89 million for the six months ended June 30, 2020 was for the impairment of fresh water delivery assets in the Utica Shale region.

Depreciation expense. Depreciation expense increased from $44 million for the six months ended June 30, 2019 to $55 million for the six months ended June 30, 2020 as a result of our acquisition of Antero Midstream Partners on March 12, 2019.

Interest expense. Interest expense increased from $38 million for the six months ended June 30, 2019 to $73 million for the six months ended June 30, 2020 as a result of the acquisition of Antero Midstream Partners on March 12, 2019, which included the assumption of approximately $2.4 billion of debt, and Antero Midstream Partners’ issuance of $650 million of 5.75% senior unsecured notes in June 2019.

Operating income (loss). Total operating income was $128 million for the six months ended June 30, 2019. Net operating loss was $384 million for the six months ended June 30, 2020. The change is primarily due to impairment of goodwill and property and equipment and as a result of our acquisition of Antero Midstream Partners on March 12, 2019.

Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates increased from $17 million for the six months ended June 30, 2019 to $40 million for the six months ended June 30, 2020 as a result of our acquisition of Antero Midstream Partners on March 12, 2019 and an increase in the level of operations at the Joint Venture in 2020.

Income tax benefit (expense). Income tax expense for the six months ended June 30, 2019 was $28 million. Income tax benefit for the six months ended June 30, 2020 was $113 million primarily due to the loss before income taxes for the six months ended June 30, 2020 coupled with an $11 million benefit related to the carryback of NOLs to prior tax years. This carryback generated a federal income tax receivable of $55 million, of which $39 million had been received as of June 30, 2020. This carryback is a result of a provision included in the CARES Act that allows corporations with NOLs incurred in 2018, 2019 and 2020 to carry

Table of Contents

back such NOLs to each of the five years preceding the year of the NOLs, beginning with the earliest year in which there is taxable income, and claim an income tax refund in the applicable carryback years. The income tax receivable account is classified as a current asset on the balance sheet.

Segment Results of Operations

For the three months ended June 30, 2019, the three months ended June 30, 2020, and the six months ended June 30, 2020, actual segment results of operations and operations data have been presented. We have also provided pro forma segment results of operations and pro forma operations data for the six months ended June 30, 2019, which have been prepared to give pro forma effect to the Transactions as if they had occurred on January 1, 2019. The pro forma adjustments are based on currently available information and certain estimates and assumptions, including the finalized purchase price allocation for the acquisition of Antero Midstream Partners. Management believes that the pro forma assumptions provide a reasonable basis for presenting the significant effects of the Transactions.

The pro forma information is for illustrative purposes only. If the Transactions had occurred on January 1, 2019, operating results might have been materially different from those presented in the pro forma financial information. The pro forma financial information should not be relied upon as an indication of operating results that we would have achieved if the Transactions had taken place on January 1, 2019. In addition, future results may vary significantly from the pro forma results reflected herein and should not be relied upon as an indication of our future results. 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 Quarterly Report on Form 10-Q.

Table of Contents

Segment Results of Operations for the Three Months Ended June 30, 2019


	Gathering and		Water				Consolidated
(in thousands)	Processing		Handling		Unallocated ⁽¹⁾		Total
Three months ended June 30, 2019
Revenues:
Revenue–Antero Resources	$	168,925		95,181		—		264,106
Revenue–third-party		—		46		—		46
Amortization of customer relationships		(2,402)		(6,132)		—		(8,534)
Total revenues		166,523		89,095		—		255,618

Operating expenses:
Direct operating		12,377		51,621		—		63,998
General and administrative (excluding equity-based compensation)		7,335		3,958		1,786		13,079
Equity-based compensation		2,286		926		18,331		21,543
Impairment of property and equipment		592		2		—		594
Depreciation		12,721		23,726		—		36,447
Accretion and change in fair value of contingent acquisition consideration		—		2,297		—		2,297
Accretion of asset retirement obligations		—		69		—		69
Total expenses		35,311		82,599		20,117		138,027
Operating income		131,212		6,496		(20,117)		117,591
Other income (expenses):
Interest expense, net		—		—		(31,521)		(31,521)
Equity in earnings of unconsolidated affiliates		13,623		—		—		13,623
Income before taxes		144,835		6,496		(51,638)		99,693
Provision for income tax expense		—		—		(30,419)		(30,419)
Net income and comprehensive income	$	144,835		6,496		(82,057)		69,274

Adjusted EBITDA⁽²⁾							$	206,160

(1)	Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

(2)	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.”

Table of Contents

Segment Results of Operations for the Three Months Ended June 30, 2020


	Gathering and		Water				Consolidated
(in thousands)	Processing		Handling		Unallocated ⁽¹⁾		Total
Three months ended June 30, 2020
Revenues:
Revenue–Antero Resources	$	185,991		63,351		—		249,342
Gathering—low pressure rebate		(12,000)		—		—		(12,000)
Amortization of customer relationships		(9,239)		(8,367)		—		(17,606)
Total revenues		164,752		54,984		—		219,736

Operating expenses:
Direct operating		14,059		28,008		—		42,067
General and administrative (excluding equity-based compensation)		5,440		2,694		1,591		9,725
Facility idling		—		2,475		—		2,475
Equity-based compensation		2,266		431		—		2,697
Depreciation		14,406		13,339		—		27,745
Accretion of asset retirement obligations		—		61		—		61
Loss on asset sale		—		240		—		240
Total expenses		36,171		47,248		1,591		85,010
Operating income		128,581		7,736		(1,591)		134,726
Other income (expenses):
Interest expense, net		—		—		(35,311)		(35,311)
Equity in earnings of unconsolidated affiliates		20,947		—		—		20,947
Income before taxes		149,528		7,736		(36,902)		120,362
Provision for income tax expense		—		—		(31,921)		(31,921)
Net income and comprehensive income	$	149,528		7,736		(68,823)		88,441

Adjusted EBITDA⁽²⁾							$	201,275

(1)	Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

(2)	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.”

Table of Contents

The operating data below represents the operating data of Antero Midstream Corporation and its subsidiaries, including Antero Midstream Partners and its subsidiaries, for the three months ended June 30, 2019 and 2020.


						Amount of
	Three Months Ended June 30,					Increase		Percentage
	2019		2020			or Decrease		Change
Operating Data:
Gathering—low pressure (MMcf)		242,266		261,039			18,773		8	%
Gathering—high pressure (MMcf)		238,406		258,380			19,974		8	%
Compression (MMcf)		218,020		246,790			28,770		13	%
Fresh water delivery (MBbl)		11,147		9,318			(1,829)		(16)	%
Treated water (MBbl)		2,658		—			(2,658)		*
Other fluid handling (MBbl)		5,086		5,433			347		7	%
Wells serviced by fresh water delivery		25		22			(3)		(12)	%
Gathering—low pressure (MMcf/d)		2,662		2,869			207		8	%
Gathering—high pressure (MMcf/d)		2,620		2,839			219		8	%
Compression (MMcf/d)		2,396		2,712			316		13	%
Fresh water delivery (MBbl/d)		122		102			(20)		(16)	%
Treated water (MBbl/d)		29		—			(29)		*
Other fluid handling (MBbl/d)		56		60			4		7	%
Average realized fees:
Average gathering—low pressure fee ($/Mcf)	$	0.33		0.33			—		*
Average gathering—high pressure fee ($/Mcf)	$	0.20		0.20			—		*
Average compression fee ($/Mcf)	$	0.19		0.20			0.01		5	%
Average fresh water delivery fee ($/Bbl)	$	3.90		3.96			0.06		2	%
Average treatment fee ($/Bbl)	$	4.50		—			(4.50)		*
Joint Venture Operating Data:
Processing—Joint Venture (MMcf)		89,770		127,791	��		38,021		42	%
Fractionation—Joint Venture (MBbl)		2,470		3,014			544		22	%
Processing—Joint Venture (MMcf/d)		986		1,404			418		42	%
Fractionation—Joint Venture (MBbl/d)		27		33			6		22	%

*	Not meaningful or applicable.

Table of Contents

Discussion of Results of Operations for the Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2020

Revenues. Total revenues decreased by 14%, from $256 million, including amortization of customer relationships of $9 million, for the three months ended June 30, 2019 to $220 million including amortization of customer relationships of $18 million, for the three months ended June 30, 2020. Gathering and processing revenues remained relatively consistent for the three months ended June 30, 2019 and 2020 at $167 million and $165 million, respectively. Water handling revenues decreased by 38%, from $89 million for the three months ended June 30, 2019 to $55 million for the three months ended June 30, 2020. These fluctuations primarily resulted from the following:

Gathering and Processing

●

low pressure gathering revenue decreased $5 million period over period due to a $12 million rebate to Antero Resources for achieving certain volumetric targets, partially offset by an increase in throughput volumes of 19 Bcf, or 207 MMcf/d. Low pressure gathering volumes increased due to 132 additional wells connected to our system since June 30, 2019;

●

high pressure gathering revenue increased $4 million period over period due to an increase in throughput volumes of 20 Bcf, or 219 MMcf/d due to additional wells connected to our system; and

●

compression revenue increased $6 million period over period due to an increase in throughput volumes of 29 Bcf, or 316 MMcf/d, primarily due to additional wells connected to our system and one compressor that came online in 2020.

Water Handling

●

fresh water delivery revenue decreased $7 million period over period due to a decrease in fresh water delivery of 1,829 MBbl, or 20 MBbl/d, as a result of a decrease in the number of wells completed;

●

revenue from the Clearwater Facility decreased $12 million for the period due to idling the Clearwater Facility in September 2019; and

●

other fluid handling services revenue decreased $13 million as costs for these services, which are billed at cost plus 3%, decreased as a result of operational efficiencies associated with our flowback and produced wastewater services, which commenced in the fourth quarter of 2019, and cost reductions.

Direct operating expenses. Total direct operating expenses decreased by 34%, from $64 million for the three months ended June 30, 2019 to $42 million for the three months ended June 30, 2020. Gathering and processing direct operating expenses remained relatively consistent for the three months ended June 30, 2019 and 2020 at $12 million and $14 million, respectively. Water handling direct operating expenses decreased from $52 million for the three months ended June 30, 2019 to $28 million for the three months ended June 30, 2020. The decrease was primarily due to more efficient flowback and produced wastewater operations, which includes the utilization of our water blending facilities.

General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) decreased by 26% from $13 million for the three months ended June 30, 2019 to $10 million for the three months ended June 30, 2020 primarily due to cost reduction efforts.

Equity-based compensation expenses. Equity-based compensation expenses decreased by 87% from $22 million for the three months ended June 30, 2019 to $3 million for the three months ended June 30, 2020 due to the Exchanged B Units that were fully vested on December 31, 2019.

Depreciation expense. Total depreciation expense decreased by 24%, from $36 million for the three months ended June 30, 2019 to $28 million for the three months ended June 30, 2020 primarily due to impairments of property and equipment during the third quarter of 2019 and first quarter of 2020, partially offset by additional gathering, compression and water handling assets placed in service.

Table of Contents

Accretion and change in fair value of contingent acquisition consideration. Accretion of contingent acquisition consideration decreased from $2 million for the three months ended June 30, 2019 to none for the three months ended June 30, 2020 as contingent consideration was paid in January 2020. No additional contingent consideration is expected to be paid.

Operating income. Total operating income increased by 15%, from $118 million for the three months ended June 30, 2019 to $135 million for the three months ended June 30, 2020 primarily due to the Exchanged B Units being fully vested on December 31, 2019. Gathering and processing operating income decreased by 2%, from $131 million for the three months ended June 30, 2019 to $129 million for the three months ended June 30, 2020. Water handling operating income increased by 19%, from $6 million for the three months ended June 30, 2019 to $8 million for the three months ended June 30, 2020 primarily as a result of increased operational efficiencies associated with our flowback and produced wastewater services.

Interest expense. Interest expense increased by 12%, from $32 million for the three months ended June 30, 2019 to $35 million for the three months ended June 30, 2020 primarily due to the issuance of $650 million of 5.75% senior unsecured notes on June 28, 2019, partially offset by lower interest rates.

Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates increased by 54%, from $14 million for the three months ended June 30, 2019 to $21 million for the three months ended June 30, 2020 primarily attributable to an increase in the level of operations at the Joint Venture in the three months ended June 30, 2020.

Income tax expense. Income tax expense remained relatively consistent at $30 million and $32 million for the three months ended June 30, 2019 and 2020, respectively.

Net income. Net income increased by 28%, from $69 million for the three months ended June 30, 2019 to $88 million for the three months ended June 30, 2020 primarily due to overall cost reductions.

Adjusted EBITDA. Adjusted EBITDA decreased by 2%, from $206 million for the three months ended June 30, 2019 to $201 million for the three months ended June 30, 2020. The decrease was primarily due to decreased freshwater delivery revenue. For a discussion of the non-GAAP financial measure Adjusted EBITDA, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, read “—Non-GAAP Financial Measures” below.

Table of Contents

Pro Forma Segment Results of Operations for the Six Months Ended June 30, 2019


									Pro Forma
	Gathering and		Water		Pro Forma				Consolidated
(in thousands)	Processing		Handling		Adjustments		Unallocated ⁽¹⁾		Total
Six months ended June 30, 2019
Revenues:
Revenue–Antero Resources	$	327,232		211,069		—		—		538,301
Revenue–third-party		—		101		—		—		101
Amortization of customer contracts		(2,903)		(7,412)		(25,225)		—		(35,540)
Total revenues		324,329		203,758		(25,225)		—		502,862

Operating expenses:
Direct operating		26,485		117,313		—		—		143,798
General and administrative (excluding equity-based compensation)		18,247		10,956		(15,345)		8,578		22,436
Equity-based compensation		4,248		2,031		—		29,164		35,443
Impairment of property and equipment		7,183		393		—		—		7,576
Depreciation		23,603		42,201		(2,974)		—		62,830
Accretion and change in fair value of contingent acquisition consideration		—		5,274		—		—		5,274
Accretion of asset retirement obligations		—		142		—		—		142
Total operating expenses		79,766		178,310		(18,319)		37,742		277,499
Operating income		244,563		25,448		(6,906)		(37,742)		225,363
Other income (expenses):
Interest expense, net		—		—		(3,301)		(54,553)		(57,854)
Equity in earnings of unconsolidated affiliates		28,767		—		571		—		29,338
Income before taxes		273,330		25,448		(9,636)		(92,295)		196,847
Provision for income tax expense		—		—		(22,470)		(28,042)		(50,512)
Net income and comprehensive income	$	273,330		25,448		(32,106)		(120,337)		146,335

Adjusted EBITDA⁽²⁾									$	408,633

(1)	Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

(2)	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.”

Table of Contents

Segment Results of Operations for the Six Months Ended June 30, 2020


	Gathering and		Water				Consolidated
(in thousands)	Processing		Handling		Unallocated ⁽¹⁾		Total
Six months ended June 30, 2020
Revenues:
Revenue–Antero Resources	$	361,120		161,535		—		522,655
Gathering—low pressure rebate		(24,000)		—		—		(24,000)
Amortization of customer relationships		(18,477)		(16,734)		—		(35,211)
Total revenues		318,643		144,801		—		463,444

Operating expenses:
Direct operating		27,450		63,345		—		90,795
General and administrative (excluding equity-based compensation)		10,484		5,599		3,841		19,924
Facility idling		—		11,153		—		11,153
Impairment of goodwill		575,461		—		—		575,461
Impairment of property and equipment		—		89,083		—		89,083
Equity-based compensation		4,799		986		250		6,035
Depreciation		27,456		27,632		—		55,088
Accretion of asset retirement obligations		—		103		—		103
Loss on asset sale		—		240		—		240
Total operating expenses		645,650		198,141		4,091		847,882
Operating loss		(327,007)		(53,340)		(4,091)		(384,438)
Other income (expenses):
Interest expense, net		—		—		(72,942)		(72,942)
Equity in earnings of unconsolidated affiliates		40,024		—		—		40,024
Loss before taxes		(286,983)		(53,340)		(77,033)		(417,356)
Provision for income tax benefit		—		—		112,864		112,864
Net income loss and comprehensive loss	$	(286,983)		(53,340)		35,831		(304,492)

Adjusted EBITDA⁽²⁾							$	418,611

(1)	Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

(2)	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.”

Table of Contents


					Amount of
	Six Months Ended June 30,				Increase		Percentage
	2019⁽¹⁾		2020		or Decrease		Change
Operating Data:
Gathering—low pressure (MMcf)		472,806		508,262		35,456		7	%
Gathering—high pressure (MMcf)		463,192		503,825		40,633		9	%
Compression (MMcf)		420,958		475,757		54,799		13	%
Fresh water delivery (MBbl)		24,879		25,937		1,058		4	%
Treated water (MBbl)		4,805		—		(4,805)		*
Other fluid handling (MBbl)		10,152		11,033		881		9	%
Wells serviced by fresh water delivery		56		65		9		16	%
Gathering—low pressure (MMcf/d)		2,612		2,793		181		7	%
Gathering—high pressure (MMcf/d)		2,559		2,768		209		8	%
Compression (MMcf/d)		2,325		2,614		289		12	%
Fresh water delivery (MBbl/d)		137		143		6		4	%
Treated water (MBbl/d)		27		—		(27)		*
Other fluid handling (MBbl/d)		56		61		5		9	%
Average realized fees:
Average gathering—low pressure fee ($/Mcf)	$	0.33		0.33		—		*
Average gathering—high pressure fee ($/Mcf)	$	0.20		0.20		—		*
Average compression fee ($/Mcf)	$	0.19		0.20		0.01		5	%
Average fresh water delivery fee ($/Bbl)	$	3.89		3.96		0.07		2	%
Average treatment fee ($/Bbl)	$	4.49		—		(4.49)		*
Joint Venture Operating Data:
Processing—Joint Venture (MMcf)		179,422		248,305		68,883		38	%
Fractionation—Joint Venture (MBbl)		4,451		5,997		1,546		35	%
Processing—Joint Venture (MMcf/d)		991		1,364		373		38	%
Fractionation—Joint Venture (MBbl/d)		25		33		8		32	%

(1)	Pro forma.

*	Not meaningful or applicable.

Table of Contents

Discussion of Results of Operations for the Six Months Ended June 30, 2019 (Pro Forma) Compared to the Six Months Ended June 30, 2020

Unless the context otherwise requires, references in this discussion of the pro forma results of operations for the six months ended June 30, 2019 to the “Company,” “we,” “us” or “our” refer to, and the results of operations discussed below relate to, the combined results of Antero Midstream Corporation and Antero Midstream Partners as if the Transactions had occurred on January 1, 2019.

Revenues. Total revenues decreased by 8%, from $503 million, including amortization of customer relationships of $36 million, for the six months ended June 30, 2019 to $463 million, including amortization of customer relationships of $35 million, for the six months ended June 30, 2020. Gathering and processing revenues decreased by 2%, from $324 million for the six months ended June 30, 2019 to $319 million for the six months ended June 30, 2020. Water handling revenues decreased by 29%, from $204 million for the six months ended June 30, 2019 to $145 million for the six months ended June 30, 2020. These fluctuations primarily resulted from the following:

Gathering and Processing

●

low pressure gathering revenue decreased $11 million period over period due to $24 million in rebates to Antero Resources for achieving certain volumetric targets, partially offset by an increase in throughput volumes of 35 Bcf, or 181 MMcf/d. Low pressure gathering volumes increased due to 132 additional wells connected to our system since June 30, 2019;

●

high pressure gathering revenue increased $9 million period over period due to an increase in throughput volumes of 41 Bcf, or 209 MMcf/d due to additional wells connected to our system; and

●

compression revenue increased $12 million period over period due to an increase in throughput volumes of 55 Bcf, or 289 MMcf/d, primarily due to additional wells connected to our system and one compressor that came online in 2020.

Water Handling

●

fresh water delivery revenue increased $6 million period over period due to an increase in fresh water delivery of 1,058 MBbl, or 6 MBbl/d, as a result of an increase in the number of wells completed;

●

revenue from the Clearwater Facility decreased $22 million for the period due to idling the Clearwater Facility in September 2019; and

●

other fluid handling services revenue decreased $34 million as costs for these services, which are billed at cost plus 3%, decreased due to operational efficiencies associated with our flowback and produced wastewater services, which commenced in the fourth quarter of 2019, and cost reductions.

Direct operating expenses. Total direct operating expenses decreased by 37%, from $144 million for the six months ended June 30, 2019 to $91 million for the six months ended June 30, 2020. Gathering and processing direct operating expenses remained relatively consistent for the six months ended June 30, 2019 and 2020 at $26 million and $27 million, respectively. Water handling direct operating expenses decreased by 46%, from $117 million for the six months ended June 30, 2019 to $63 million for the six months ended June 30, 2020. The decrease was primarily due to more efficient flowback and produced wastewater operations, which includes the utilization of our water blending facilities.

General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) decreased by 11%, from $22 million for the six months ended June 30, 2019 to $20 million for the six months ended June 30, 2020 primarily due to cost reduction efforts.

Equity-based compensation expenses. Equity-based compensation expenses decreased from $35 million for the six months ended June 30, 2019 to $6 million for the six months ended June 30, 2020 due to the Exchanged B Units that were fully vested on December 31, 2019.

Impairment of property and equipment expense. Impairment of property and equipment expense of $8 million for the six months ended June 30, 2019 was incurred in connection with the decommission of assets related to a third-party compressor station.

Table of Contents

Impairment of property and equipment expense of $89 million for the six months ended June 30, 2020 was due to the impairment of fresh water delivery assets in the Utica Shale region.

Depreciation expense. Total depreciation expense decreased by 12%, from $63 million for the six months ended June 30, 2019 to $55 million for the six months ended June 30, 2020 primarily due to assets that were impaired during the third quarter of 2019 and the first quarter of 2020, partially offset by additional gathering, compression and water handling assets placed in service.

Accretion and change in fair value of contingent acquisition consideration. Accretion of contingent acquisition consideration decreased from $5 million for the six months ended June 30, 2019 to none for the six months ended June 30, 2020 because contingent consideration was paid in January 2020. No additional contingent consideration is expected to be paid.

Operating income (loss). Total operating income for the six months ended June 30, 2019 was $225 million. Total operating loss for the six months ended June 30, 2020 was $384 million. Gathering and processing operating income was $245 million for the six months ended June 30, 2019. Gathering and processing operating loss was $327 million for the six months ended June 30, 2020 primarily due to an impairment of goodwill. Water handling operating income was $25 million for the six months ended June 30, 2019. Water handling operating loss was $53 million for the six months ended June 30, 2020 primarily due to the impairment of fresh water delivery assets in the Utica Shale region.

Interest expense. Interest expense increased by 26%, from $58 million for the six months ended June 30, 2019 to $73 million for the six months ended June 30, 2020 primarily due to an increase in interest expense incurred on increased borrowings under the Credit Facility during the period and the issuance of $650 million of 5.75% senior unsecured notes on June 28, 2019.

Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates increased by 36%, from $29 million for the six months ended June 30, 2019 to $40 million for the six months ended June 30, 2020 primarily attributable to an increase in the level of operations at the Joint Venture in the six months ended June 30, 2020.

Net income (loss). Net income was $146 million for the six months ended June 30, 2019. Net loss was $304 million for the six months ended June 30, 2020 primarily due to a $575 million impairment of goodwill for our gathering system and an $89 million impairment of freshwater delivery assets.

Adjusted EBITDA. Adjusted EBITDA increased by 2%, from $409 million for the six months ended June 30, 2019 to $419 million for the six months ended June 30, 2020. The increase was primarily due to increased throughput and decreased direct operating expenses. For a discussion of the non-GAAP financial measure Adjusted EBITDA, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, read “—Non-GAAP Financial Measures” below.

Capital Resources and Liquidity as Reported

Sources and Uses of Cash

Capital resources and liquidity are provided by operating cash flow, cash on our balance sheet and available borrowings under the Credit Facility. We expect that the combination of these capital resources will be adequate to meet our working capital requirements, capital expenditures program, expected quarterly cash dividends and share repurchases under our share repurchases program for at least the next twelve months.

Our Board of Directors declared a cash dividend on the shares of AM common stock of $0.3075 per share for the quarter ended June 30, 2020. The dividend will be payable on August 12, 2020 to stockholders of record as of July 30, 2020. Our Board of Directors also declared a cash dividend of $138 thousand on the shares of Series A Preferred Stock, which will be paid on August 14, 2020 in accordance with their terms, which are discussed in Note 13—Equity and Earnings Per Common Share. As of June 30, 2020, there were dividends in the amount of $69 thousand accumulated in arrears on our Series A Preferred Stock.

We expect our future cash requirements relating to working capital, maintenance capital expenditures and quarterly cash dividends to our stockholders will be funded from cash flows internally generated from our operations. Our expansion capital expenditures will be funded by a combination of cash flows from operations or borrowings under the Credit Facility.

Table of Contents

Cash Flows

The following table summarizes our cash flows for the six months ended June 30, 2019 and 2020:


	Six Months Ended June 30,				Increase/
(in thousands)	2019		2020		(Decrease)
Net cash provided by operating activities	$	252,164		362,147		109,983
Net cash used in investing activities		(221,401)		(143,341)		(78,060)
Net cash used in financing activities		(25,794)		(217,044)		191,250
Net increase in cash and cash equivalents	$	4,969		1,762

Cash Flows Provided by Operating Activities

Net cash provided by operating activities was $252 million and $362 million for the six months ended June 30, 2019 and 2020, respectively. The increase in cash flows provided by operations for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily the result of increased cash flows associated with the Merger.

Cash Flows Used in Investing Activities

Net cash flows used in investing activities was $221 million and $143 million for the six months ended June 30, 2019 and 2020, respectively. The decrease in cash flows used in investing activities was due to (i) an $81 million decrease in investments made in unconsolidated affiliates and a $33 million decrease in additions to our water handling system, partially offset by a $15 million increase in expansions to our gathering system.

Antero Midstream Partners’ capital spending for the full six months ended June 30, 2019 included investing activities of (i) $137 million to our gathering system, (ii) $81 million to our water handling system, and (iii) $128 million invested in our Joint Venture.

Our current capital budget is a range of $200 million to $215 million for 2020. Our capital budgets may be adjusted as business conditions warrant. If natural gas, NGLs, and oil prices decline to levels below acceptable levels or costs increase to levels above acceptable levels or if Antero Resources temporarily curtails or shuts-in production, Antero Resources could choose to defer a significant portion of its budgeted capital expenditures until later periods. As a result, we may also defer a significant portion of our budgeted capital expenditures to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flows. We routinely monitor and adjust our capital expenditures in response to changes in Antero Resources’ development plans, changes in prices, availability of financing, acquisition costs, industry conditions, the timing of regulatory approvals, success or lack of success in Antero Resources’ drilling activities, contractual obligations, internally generated cash flows and other factors both within and outside our control.

Cash Flows Used in Financing Activities

Net cash used in financing activities was $25 million and $217 million for the six months ended June 30, 2019 and 2020, respectively. For the six months ended June 30, 2019, net cash used in financing activities included: (i) total distributions to shareholders and holders of Series B Units of $186 million; (ii) net repayments on the Credit Facility of $481 million; and (iii) the issuance of $650 million of 5.75% senior unsecured notes on June 28, 2019. Net cash used in financing activities for the six months ended June 30, 2020 included: (i) total dividends paid to common and preferred shareholders of $296 million; (ii) $125 million (net of $34 million reflected in the cash flows provided by operating operations related to the accretion of fair value) paid to Antero Resources for the fair value of contingent acquisition consideration at the date of acquisition; (iii) $196 million in net borrowings on our Credit Facility; and (iv) $25 million of repurchases of common stock.

Debt Agreements and Contractual Obligations

Antero Midstream Partners Revolving Credit Facility

Antero Midstream Partners, as borrower (the “Borrower”), entered into a senior secured revolving credit facility (as amended, the “Credit Facility”) with a consortium of banks on October 26, 2017. The Credit Facility includes fall away covenants and lower interest rates that are triggered if and when the Borrower elects to enter into an Investment Grade Period (as defined in the Credit

Table of Contents

Facility). Our Credit Facility provides for borrowing under either the Eurodollar Rate or the Base Rate (as each term is defined in the Credit Facility).

The Credit Facility matures on October 26, 2022. At June 30, 2020, we had $1.2 billion of borrowings and no letters of credit outstanding under the Credit Facility. Lender commitments under the Credit Facility are currently $2.13 billion.

We have a choice of borrowing in Eurodollars or at the base rate. Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable (i) with respect to base rate loans, quarterly and (ii) with respect to Eurodollar loans, the last day of each Interest Period (as defined below); provided that if any Interest Period for a Eurodollar loan exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. Eurodollar loans bear interest at a rate per annum equal to the LIBOR Rate administered by the ICE Benchmark Administration for one, two, three, six or, if available to the lenders, twelve months (the “Interest Period”) plus an applicable margin ranging from 125 to 225 basis points (subject to certain exceptions), depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 25 to 125 basis points (subject to certain exceptions) depending on the leverage ratio then in effect.

The Credit Facility is guaranteed by our subsidiaries and is secured by mortgages on substantially all of Antero Midstream Partners’ and its subsidiaries’ properties. The Credit Facility contains restrictive covenants that may limit our ability to, among other things:

●

incur additional indebtedness;

●

sell assets;

●

make loans to others;

●

make investments;

●

enter into mergers;

●

make certain restricted payments;

●

incur liens; and

●

engage in certain other transactions without the prior consent of the lenders.

The Credit Facility also requires us to maintain the following financial ratios (subject to certain exceptions):

●

a consolidated interest coverage ratio, which is the ratio of our consolidated EBITDA to its consolidated current interest charges of at least 2.5 to 1.0 at the end of each fiscal quarter;

●

a consolidated total leverage ratio, which is the ratio of consolidated debt to consolidated EBITDA, of not more than 5.00 to 1.00 at the end of each fiscal quarter; provided that, at our election (the “Financial Covenant Election”), the consolidated total leverage ratio shall be no more than 5.25 to 1.0; and

●

after a Financial Covenant Election, a consolidated senior secure leverage ratio covenant rather than the consolidated total leverage ratio covenant, which is the ratio of consolidated senior secured debt to consolidated EBITDA, of not more than 3.75 to 1.0.

We were in compliance with the applicable covenants and ratios as of June 30, 2020.

Table of Contents

Senior Notes

Please refer to Note 9—Long-Term Debt to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2019 Form 10-K for information on our senior notes.

Contractual Obligations

Future capital contributions to unconsolidated affiliates are excluded from the table as neither the amounts nor the timing of the obligations can be determined in advance. A summary of our contractual obligations by maturity date as of June 30, 2020 is provided in the following table.


	Remainder		Year Ended December 31,
(in millions)	of 2020		2021		2022		2023		2024		2025		Thereafter		Total
Credit Facility ⁽¹⁾	$	—		—		1,155		—		—		—		—		1,155
5.375% senior notes due 2024—principal		—		—		—		—		650		—		—		650
5.375% senior notes due 2024—interest		17		35		35		35		35		—		—		157
5.75% senior notes due 2027—principal		—		—		—		—		—		—		650		650
5.75% senior notes due 2027—interest		19		37		37		37		37		37		56		260
5.75% senior notes due 2028—principal		—		—		—		—		—		—		650		650
5.75% senior notes due 2028—interest		19		37		37		37		37		37		93		297
Asset retirement obligations		3		—		—		1		—		—		2		6
Total	$	58		109		1,264		110		759		74		1,451		3,825

(1)

Includes outstanding principal amounts on the Credit Facility at June 30, 2020. This table does not include future commitment fees, interest expense or other fees on the Credit Facility because they are floating rate instruments and we cannot determine with accuracy the timing of future loan advances, repayments or interest rates that may be charged.

Non-GAAP Financial Measures

We use Adjusted EBITDA as an important indicator of our performance. In our presentation of Adjusted EBITDA for the three months ended June 30, 2019 and the three and six months ended June 30, 2020, net income (loss) and the corresponding adjustments reflect our actual results of operations. In our presentation of Adjusted EBITDA for the six months ended June 30, 2019, 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 Quarterly Report on Form 10-Q. 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, amortization of customer relationships, loss on asset sale 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.

Adjusted EBITDA is a non-GAAP financial measure. The GAAP measure most directly comparable to Adjusted EBITDA is net income. The non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income. 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. You should not consider Adjusted EBITDA in

Table of Contents

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:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2019		2020		2019⁽¹⁾		2020
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
Net income (loss)	$	69,274		88,441	$	146,335		(304,492)
Interest expense, net		31,521		35,311		57,854		72,942
Income tax expense (benefit)		30,419		31,921		50,512		(112,864)
Amortization of customer relationships		8,534		17,606		35,540		35,211
Depreciation expense		36,447		27,745		62,830		55,088
Impairment		594		—		7,576		664,544
Accretion and change in fair value of contingent acquisition consideration		2,366		61		5,416		103
Equity-based compensation		21,543		2,697		35,443		6,035
Equity in earnings of unconsolidated affiliates		(13,623)		(20,947)		(29,338)		(40,024)
Loss on asset sale		—		240		—		240
Distributions from unconsolidated affiliates		19,085		18,200		36,465		41,828
Adjusted EBITDA	$	206,160		201,275	$	408,633		418,611

(1)	Pro Forma.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements. We provide expanded discussion of our more significant accounting policies, estimates and judgments in the 2019 Form 10-K. We believe these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements.

New Accounting Pronouncements

There were no new accounting pronouncements issued during the three months ended June 30, 2020 that had or are expected to have a material effect on the Company’s financial reporting.

Off-Balance Sheet Arrangements

As of June 30, 2020, we did not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in commodity prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.

Table of Contents

Commodity Price Risk

Our gathering and compression and water services agreements with Antero Resources provide for fixed-fee structures, and we intend to continue to pursue additional fixed-fee opportunities with Antero Resources and third parties in order to avoid direct commodity price exposure. However, to the extent that our future contractual arrangements with Antero Resources or third parties do not provide for fixed-fee structures, we may become subject to commodity price risk. We are subject to commodity price risks to the extent that they impact Antero Resources’ development program and production and therefore our gathering, compression, and water handling volumes. We cannot predict to what extent our business would be impacted by lower commodity prices and any resulting impact on Antero Resources’ operations.

Interest Rate Risk

Our primary exposure to interest rate risk results from outstanding borrowings under the Credit Facility, which has a floating interest rate. We do not currently, but may in the future, hedge the interest on portions of our borrowings under the Credit Facility from time-to-time in order to manage risks associated with floating interest rates. At June 30, 2020, we had $1.2 billion of borrowings and no letters of credit outstanding under the Credit Facility. A 1.0% increase in the Credit Facility interest rate would have resulted in an estimated $5.7 million increase in interest expense for the six months ended June 30, 2020.

Credit Risk

We are dependent on Antero Resources as our primary customer, and we expect to derive substantially all of our revenues from Antero Resources for the foreseeable future. As a result, any event, whether in our area of operations or otherwise, that adversely affects Antero Resources’ production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of operations or cash flows may adversely affect our revenues and operating results.

Further, we are subject to the risk of non-payment or non-performance by Antero Resources, including with respect to our gathering and compression and water handling services agreements. We cannot predict the extent to which Antero Resources’ business would be impacted if conditions in the energy industry were to continue to deteriorate, nor can we estimate the impact such conditions would have on Antero Resources’ ability to execute its drilling and development program or to perform under our agreements. Any material non-payment or non-performance by Antero Resources could adversely affect our revenues and operating results and our ability to return capital to stockholders.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2020 at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

Item 1. 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 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 Defendants and Antero Treatment’s alternative claim for rescission against Veolia. All other claims remain part of the consolidated action.

Item 1A. Risk Factors.

We are subject to certain risks and hazards due to the nature of the business activities we conduct. For a discussion of these risks, see “Item 1A. Risk Factors” in the 2019 Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. There have been no material changes to the risks described in such reports. We may experience additional risks and uncertainties not currently known to us. Furthermore, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect us.

Table of Contents

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

The following table sets forth our share purchase activity for each period presented:


				Total Number of	Approximate Value
	Number of	Average Price		Common	of Common
	Common	Paid per		Shares Purchased	Shares that May
	Shares	Common		as Part of Publicly	Yet be Purchased
Period	Purchased⁽¹⁾	Share		Announced Plans⁽²⁾	Under the Plan
April 1, 2020 – April 30, 2020	3,335,119	$	2.76	3,201,800	$	149,800,870
May 1, 2020 – May 31, 2020	7,900	$	4.24	7,900	$	149,767,409
June 1, 2020 – June 30, 2020	—	$	—	—		N/A
Total	3,343,019	$	2.77	3,209,700	$	149,767,409

(1)	The total number of shares purchased includes 133,319 shares repurchased in April, representing shares of AM common stock transferred to us to satisfy tax withholding obligations incurred upon the vesting of equity awards held by our employees. There were no such repurchases in May and June.

(2)	In August 2019, the Company’s Board of Directors authorized a $300 million share repurchase program. During the three months ended June 30, 2020, we repurchased 3,209,700 shares under this program for a total of $8.9 million, or a weighted average of $2.77 per share.

Table of Contents

Item 6.Exhibits


Exhibit Number		Description of Exhibit
3.1		Certificate of Conversion of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
3.2		Certificate of Incorporation of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
3.3		Bylaws of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
3.4		Certificate of Designations of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
31.1	*	Certification of the Company’s Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).
31.2	*	Certification of the Company’s Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).
32.1	*	Certification of the Company’s Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2	*	Certification of the Company’s Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
99.1	*	Unaudited pro forma condensed combined financial statements of Antero Midstream Corporation.
101	*	The following financial information from this Quarterly Report on Form 10-Q of Antero Midstream Corporation for the quarter ended June 30, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Partners’ Capital and Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

The exhibits marked with the asterisk symbol (*) are filed or furnished with this Quarterly Report on Form 10-Q.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



ANTERO MIDSTREAM CORPORATION

By:	/s/ Michael N. Kennedy
	MICHAEL N. KENNEDY
	Chief Financial Officer

Date:	July 29, 2020

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. junior Avg

Antero Midstream (AM) 10-Q2020 Q1 Quarterly report

Content analysis