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HM

Hess Midstream LP (HESM)·Q1 2025 Earnings Summary

Executive Summary

  • Revenue slightly exceeded consensus, but EPS missed: Q1 2025 revenues were $382.0M vs $381.6M consensus, while basic EPS was $0.65 vs $0.686 consensus; weather-driven volume softness and higher interest expense (note redemption charges) weighed on EPS. Bolded: Revenue beat; EPS miss [*]
  • Adjusted EBITDA of $292.3M and Adjusted Free Cash Flow of $190.7M; gross Adjusted EBITDA margin remained robust at ~82%, above the 75% long-term target .
  • Full-year 2025 guidance reaffirmed: net income $715–$765M, Adjusted EBITDA $1.235–$1.285B, capex ~$300M, Adjusted FCF $735–$785M; throughput ranges maintained (gas processing 455–465 MMcf/d, terminals 130–140 Mbbl/d) .
  • Capital returns: quarterly distribution raised to $0.7098 per Class A share; strategy contemplates multiple repurchases per year and >$1.25B flexibility through 2027, a continuing catalyst for shareholder yield .

What Went Well and What Went Wrong

What Went Well

  • Maintained strong profitability despite weather: Adjusted EBITDA $292.3M, gross Adjusted EBITDA margin ~82% (above 75% target) .
  • Throughput growth YoY: gas processing +8%, oil terminaling +7%, water gathering +9% vs Q1 2024, driven by higher production and third-party volumes .
  • Management reiterated confidence and capital return framework: “We remain focused on execution, delivery, and growth… return capital to our shareholders on a consistent and ongoing basis” — John Gatling ; CFO highlighted leverage ~3.1x with plan for growing EBITDA and ongoing repurchases .

What Went Wrong

  • Weather-driven volume softness vs Q4: gas processing averaged 424 MMcf/d vs 447 MMcf/d in Q4 2024; management attributed softness to severe winter weather, guiding recovery in Q2 .
  • EPS below consensus: basic EPS $0.65 vs $0.686 consensus; higher net interest expense ($56.4M) and charges from redeeming 5.625% notes pressured earnings [*].
  • Operating costs up YoY: total operating costs/expenses rose to $144.6M from $133.6M, reflecting higher employee costs, pass-through electricity/water trucking, and depreciation on new assets .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenues ($USD Millions)$378.5 $395.9 $382.0
Income from Operations ($USD Millions)$231.7 $243.0 $237.4
Net Income ($USD Millions)$164.7 $172.1 $161.4
Net Income Attributable to HESM LP ($USD Millions)$58.6 $70.4 $71.6
Basic EPS ($ per Class A share)$0.63 $0.68 $0.65
Adjusted EBITDA ($USD Millions)$286.9 $298.2 $292.3
Adjusted Free Cash Flow ($USD Millions)$141.4 $164.3 $190.7
Gross Margin (%)61% 61% 62%
Gross Adjusted EBITDA Margin (%)81% 81% 82%

Segment revenues

Segment Revenues ($USD Millions)Q3 2024Q4 2024Q1 2025
Gathering$203.5 $212.0 $203.6
Processing & Storage$145.1 $154.0 $147.8
Terminaling & Export$29.9 $29.9 $30.6
Total Revenues$378.5 $395.9 $382.0

KPIs (Throughput)

KPIQ3 2024Q4 2024Q1 2025
Gas Gathering (MMcf/d)442 463431
Crude Oil Gathering (kbpd)116 120117
Gas Processing (MMcf/d)419 447424
Crude Terminals (kbpd)122 127125
Water Gathering (kbpd)128 130126

Non-GAAP definitions update: HESM revised Adjusted EBITDA definition beginning Q2 2024; prior periods recast; Adjusted Free Cash Flow and Gross Adjusted EBITDA Margin definitions provided and reconciled in releases .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Income ($M)FY 2025$715–$765 $715–$765 Maintained
Adjusted EBITDA ($M)FY 2025$1,235–$1,285 $1,235–$1,285 Maintained
Capital Expenditures ($M)FY 2025~$300 ~$300 Maintained
Adjusted Free Cash Flow ($M)FY 2025$735–$785 $735–$785 Maintained
Gas Processing (MMcf/d)FY 2025455–465 455–465 Maintained
Crude Terminals (kbpd)FY 2025130–140 130–140 Maintained
Quarterly Distribution ($/sh)Q1 2025$0.7012 (Q4’24) $0.7098 Raised
Net Income ($M)Q2 2025N/A$170–$180 New
Adjusted EBITDA ($M)Q2 2025N/A$300–$310 New
Leverage TargetOngoing3x longer-term 3x target; below 3x by YE25 expected Maintained; outlook improved

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 2025)Trend
Weather and volumesQ4’24: guided Q1 volumes lower due to severe winter risk; EBITDA midyear step-up expected Confirmed Q1 impact; recovery underway; Q2 net income $170–$180M, EBITDA $300–$310M Improving post-weather
MVCs and stabilityQ4’24: MVCs set through 2027; stability/visibility emphasized MVCs ~80% of nominations; set through 2027; supports 5% distribution growth even at MVC levels Stable, reaffirmed
Gas growth & capacityQ4’24: plan for 125 MMcf/d Capa plant; compressor stations; gas volumes +10% in 2026 Capa construction starting; 2 compressors add 85 MMcf/d in 2025; basin gas growth supports egress Building capacity
Return of capitalQ4’24: framework through 2027; multiple repurchases per year; distribution growth ≥5% Q1 distribution raised; >$1.25B flexibility; multiple buybacks expected Ongoing, supportive
Third-party volumesQ3’24: mixed trends; oil terminaling down YoY; water up Third-party oil offset helped Q1; expect ~10% of total long term Stable contribution
Pipeline egressQ4’24: flow assurance planning alongside Northern Border/ONEOK Added flexibility via Bison Express; commitments in place Adequate capacity

Management Commentary

  • John Gatling: “We continued to deliver strong operational and financial performance in the first quarter despite challenging weather” .
  • Jonathan Stein: “Our gross adjusted EBITDA margin for the first quarter was maintained at approximately 80%, above our 75% target… We expect net income of $170–$180M and adjusted EBITDA of $300–$310M in Q2” .
  • Gatling on recovery: “We’ve seen a very strong recovery… smooth transition into Q2... extremely optimistic about the volumes” .
  • Stein on capital returns: “More than $1.25B of financial flexibility through 2027… expect multiple repurchases per year” .

Q&A Highlights

  • Stability through volatility: Contracts have no direct commodity exposure; MVCs set through 2027; leverage ~3.1x adjusted EBITDA supports returns .
  • Volumes relative to MVCs: MVCs ~80% of nominations; third parties expected ~10% of volumes; Q1 oil outpaced gas due to capturing offset well pads .
  • Rig cadence and price sensitivity: Hess remains at 4 rigs; longer laterals lower breakevens, mitigating downside from oil price volatility .
  • Gas growth and egress: Basin gas expected to grow; HESM secured capacity; Bison Express adds flexibility to Northern Border/ONEOK systems .
  • Capital allocation: ~$1.25B flexibility roughly half leverage capacity, half excess FCF; openness to incorporating public buybacks alongside sponsor repurchases over time .

Estimates Context

MetricQ1 2025 ConsensusQ1 2025 ActualSurprise
Revenue ($USD Millions)$381.6*$382.0 +$0.4M (beat)
Primary EPS ($)$0.686*$0.65 −$0.036 (miss)
EPS - # of Estimates6*——
Revenue - # of Estimates4*——

Values retrieved from S&P Global.*

Implications: modest revenue beat alongside EPS miss suggests cost/interest headwinds masked underlying throughput-driven revenue strength; estimate models may raise revenue slightly but trim EPS/interest assumptions given debt refinancing and redemption charges .

Key Takeaways for Investors

  • Resilient margins: Gross Adjusted EBITDA margin ~82% in Q1, well above 75% target, supporting durable cash generation even with weather variability .
  • Visible sequential recovery: Management guides Q2 EBITDA up to $300–$310M on volume rebound; second-half EBITDA ~11% above first half at guidance midpoints .
  • Capital return flywheel: Distribution increased to $0.7098; multiple buybacks per year anticipated, underpinned by >$1.25B flexibility through 2027 .
  • Growth investments de‑risked: Two compressor stations add 85 MMcf/d in 2025; Capa gas plant (125 MMcf/d) construction underway to meet rising gas volumes through decade .
  • Contracted stability: MVCs at 80% of nominations through 2027 underpin ≥5% distribution growth even at MVC levels, reducing commodity risk and smoothing cash flows .
  • Balance sheet trajectory: Expect leverage below 3x by YE25 and below 2.5x by YE26, expanding optionality for incremental repurchases .
  • Trading lens: Near-term catalyst is Q2 rebound in volumes/EBITDA and continued capital return updates; mid-term thesis rests on gas growth, infrastructure expansions, and disciplined rate escalators that sustain high margins .

Appendix: Additional Relevant Press Releases

  • Scheduling of Q1 earnings release/call (context): HESM set the Q1 2025 call for April 30, 2025 .
  • Post-quarter capital actions: Signed accretive $200M repurchase including $190M of Class B units and $10M ASR for Class A shares, reinforcing capital return strategy (May 6, 2025) .