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HM

Hess Midstream LP (HESM)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered solid YoY growth: Revenues rose to $395.9M (+11% YoY), Adjusted EBITDA to $298.2M (+13% YoY), and net income to $172.1M; EPS attributable to HESM LP increased to $0.68 from $0.55, driven by higher physical volumes and gas capture .
  • Gross margin expanded to 61% (from 59%) and Gross Adjusted EBITDA margin to 81% (from 79%), reflecting strong operating leverage; pass-through revenues were $26.7M vs. $21.7M a year ago .
  • Return-of-capital remained a key catalyst: $100M unit repurchase in Jan 2025 and quarterly distribution raised to $0.7012 per Class A share for Q4 2024; program extended through 2027 with >$1.25B flexibility for repurchases and distribution growth ≥5% annually .
  • 2025 guidance targets net income of $715–$765M and Adjusted EBITDA of $1.235–$1.285B (+~11% YoY midpoint), capex ~$300M, and Adjusted FCF of $735–$785M, with leverage expected to fall below 3.0x in 2025 .
  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable due to access limits; we cannot assess beats/misses vs. estimates at this time (will update when available).

What Went Well and What Went Wrong

  • What Went Well

    • Volume growth and execution: “In 2024, we achieved another year of significant volume growth and made excellent progress on our planned multi-year infrastructure projects” — John Gatling . Gas gathering and processing throughput up ~15–16% YoY in Q4 .
    • Operating leverage maintained: Gross Adjusted EBITDA margin ~81% in Q4, above the 75% target; “highlighting our continued strong operating leverage” — CFO .
    • Shareholder returns and balance sheet: $100M accretive repurchase in Jan 2025 and ~3.1x leverage at year-end; one of the lowest leverages among peers, enabling ongoing return of capital — CFO .

  • What Went Wrong

    • Higher pass-through and interest costs: Operating costs rose partly due to pass-through electricity/produced water and higher G&A allocations; interest expense increased on 2024 notes issuance .
    • Q4 external disruptions and near-term weather: October wildfires caused temporary power losses that constrained Q4 volumes, and severe Jan weather is expected to impact Q1 2025 volumes — management flagged conservatism for Q1 .
    • Continued capex intensity near term: Capex stepped up to ~$84.3M in Q4 (vs. $71.8M YoY) and planned ~$300M in 2025 to fund compressor stations and the new Capa Gas Plant, before stepping down post-2027 .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenues ($USD Millions)$356.5 $378.5 $395.9
Net Income ($USD Millions)$152.8 $164.7 $172.1
Net Income Attributable to HESM LP ($USD Millions)$37.5 $58.6 $70.4
Basic EPS ($USD)$0.55 $0.63 $0.68
Adjusted EBITDA ($USD Millions)$262.9 $287.0 $298.2
Gross Margin (%)59% N/A61%
Gross Adjusted EBITDA Margin (%)79% N/A81%

Segment revenues

Segment Revenues ($USD Millions)Q4 2023Q3 2024Q4 2024
Gathering$193.3 $203.5 $212.0
Processing & Storage$131.3 $145.1 $154.0
Terminaling & Export$31.9 $29.9 $29.9
Total Revenues$356.5 $378.5 $395.9

KPIs (throughput volumes)

KPIQ4 2023Q3 2024Q4 2024
Gas gathering (Mcf/d)403 442 463
Gas processing (Mcf/d)387 419 447
Crude oil gathering (bopd)108 116 120
Crude terminals (bopd)120 122 127
Water gathering (blpd)113 128 130
NGL loading (blpd)16 15 13

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($MM)Q4 2024$295–$310 $298.2 In-line at midpoint
Net Income ($MM)Q4 2024$170–$185 $172.1 In-line
Net Income ($MM)FY 2024$650–$700 $659.0 Met range
Adjusted EBITDA ($MM)FY 2024$1,125–$1,175 $1,136.1 Met around midpoint
Net Income ($MM)FY 2025N/A$715–$765 New guidance
Adjusted EBITDA ($MM)FY 2025N/A$1,235–$1,285 New guidance
Adjusted Free Cash Flow ($MM)FY 2025N/A$735–$785 New guidance
Capital Expenditures ($MM)FY 2025N/A~$300 New guidance
Gross Adjusted EBITDA MarginFY 2025~75% target (ongoing)~75% target Maintained
Distribution per Class A share growth targetThrough 2026≥5% ≥5% through 2027 Period extended
Quarterly distribution levelQ3 → Q4 2024$0.6846 (Q3) $0.7012 (Q4) Raised
MVCs (Hess volume commitments)2025–20272026 previously set; 2027 N/A2025–2027 set: Gas Gathering 382/418/418 MMcf/d; Processing 364/396/404 MMcf/d; Crude Gathering 103/110/112 MBbl/d; Terminaling 111/118/124 MBbl/d; Water 104/102/98 MBbl/d 2025/2026 updated; 2027 established

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 and Q3)Current Period (Q4)Trend
Return of capital (repurchases & distribution growth)$100M repurchase (Jun) and ≥5% growth target; reiterated excess FCF $100M repurchase (Jan 2025); extended framework through 2027; >$1.25B flexibility Strengthening and extended
Volume growth & MVCs visibilityIncreased 2024 gas throughput guidance ; 10% annualized growth through 2026; Q3 wildfires impact 2025 volumes +~10%; MVCs set through 2027; Q1 2025 expected weather impacts Upward trajectory with near-term weather noise
Capex & Capa Gas Plant (125 MMcf/d)Planning to start construction in 2025; capex ~$97M in Q3 2025 capex ~$300M; two compressor stations adding 85 MMcf/d and start of Capa Gas Plant; step-down post-2027 Elevated near term; declining post-2027
Tariff/rate escalators—Majority fixed-fee systems with inflation escalator capped at 3%; 2025 rates higher YoY Steady rate increases
Weather & operational disruptionsQ3 wildfires caused power outages, short-term volume constraints Severe winter weather to impact Q1 2025 volumes; conservative Q1 approach Transitory headwinds
Leverage & balance sheet~3.2x in Q3; conservative target 3x ~3.1x YE 2024; <3.0x in 2025 and <2.5x in 2026 expected Declining leverage

Management Commentary

  • Strategy and execution: “We remain focused on reliable operating performance and consistent execution that will drive increased volumes through our systems and value to our shareholders.” — John Gatling .
  • Multi-year growth plan: “We anticipate volumes to be lower than the fourth quarter of 2024 due to the impact of severe winter weather in January… For full year 2025, we anticipate approximately 10% growth in volumes across our oil and gas systems.” — John Gatling .
  • Capa Gas Plant and compression expansions: “We are beginning construction this year on the previously announced 125 MMcf/d Capa Gas Plant… Two new compressor stations… are expected to add a combined 85 MMcf/d.” — John Gatling .
  • Shareholder returns and leverage: “Our leverage of approximately 3.1x adjusted EBITDA is one of the lowest among our peers… we expect to have greater than $1.25 billion of financial flexibility through 2027.” — Jonathan Stein .
  • Rate structure: “Approximately 85% of our revenues are fixed fees, with rates increasing each year based on an inflation escalator capped at 3%… For 2025, tariff rates across all our systems are higher than 2024 rates.” — Jonathan Stein .

Q&A Highlights

  • MVC math and growth underpinning: Management detailed the MVC gross-up implying >7.5% gas processing growth in 2026 and ~4% in 2027 (ex-maintenance), with third-party volumes adding upside .
  • Basin focus and M&A stance: No plans to expand beyond Bakken; disciplined approach to bolt-ons given strong organic growth; third-party volumes expected to grow at similar pace to Hess .
  • Capex phasing and post-2027 step-down: 2025 capex ~$300M includes compressor stations and plant construction; capex expected to step down beyond 2027 as projects complete .
  • Capital allocation and repurchases: Framework prioritizes ongoing repurchases and distribution level increases; potential to include public holders in future repurchases as ownership evolves .
  • Weather impacts and 2025 cadence: Q1 2025 guidance incorporates January severe weather with basin down ~10% (Hess less); EBITDA expected to grow sequentially from Q2–Q4 2025 .

Estimates Context

  • S&P Global consensus for Q4 2024 EPS and revenue was not retrievable due to access limits; therefore, we cannot assess beats/misses vs. Wall Street estimates at this time. We will update the recap when SPGI consensus becomes available.

Key Takeaways for Investors

  • Stable, fee-based model with inflation-linked rates (cap at 3%) and MVCs through 2027 supports visibility in EBITDA and FCF growth; margins remain robust (Gross Adjusted EBITDA margin ~81% in Q4) .
  • Near-term tactical: Expect Q1 2025 volume softness from severe weather; sequential EBITDA growth is guided for the remainder of 2025, offering potential setup for positive revisions intra-year .
  • Shareholder returns: Distribution increased to $0.7012 and the return-of-capital framework extended through 2027 with >$1.25B flexibility—multiple repurchases per year likely to remain a catalyst .
  • Growth projects: 2025–2027 investments (compressor stations and 125 MMcf/d Capa Gas Plant) should accommodate Hess and third-party gas growth; capex expected to decline post-2027, expanding FCF runway .
  • Balance sheet: Leverage at ~3.1x YE 2024 with expectations below 3.0x in 2025 and below 2.5x in 2026 enhances capacity for continued capital returns without compromising financial strength .
  • Operational resilience: Q4 wildfires and Q1 weather highlight transitory risks; strong system availability and gas capture underpin sustained volumes over the year .
  • Narrative drivers: Extending guidance horizon (to 2027), rising MVCs, and visible project pipeline should support a premium multiple vs. midstream peers focused on fee-based growth and shareholder yield .