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SM

Summit Midstream Partners, LP (SMLP)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 delivered sequential growth with total revenues of $127.3M, adjusted EBITDA of $75.0M, DCF of $37.8M, and FCF of $20.4M; full-year adjusted EBITDA was $266.8M and management framed Q4 run-rate at ~$300M adjusted EBITDA .
  • Management advanced its strategic alternatives review, citing “advanced stages” and strong third-party interest (asset sales to partnership-level transactions); 2024 adjusted EBITDA guidance was set at $260–$300M and capex at $30–$40M .
  • Operations were solid: throughput increased across natural gas and Double E, while oil-price driven segments posted $30.3M segment EBITDA; DJ Basin de-bottlenecking and Utica compression projects started, supporting incremental fees and ~$5M 2024 synergies .
  • Liquidity remained adequate with $14.0M cash and $82.7M ABL availability; total leverage ~5.4x, first lien leverage 1.2x, interest coverage 1.93x, all covenants in compliance .
  • Distribution suspension continued on common and Series A preferred; near-term stock catalysts include strategic review outcomes, Double E commercialization, and execution vs 2024 guidance .

What Went Well and What Went Wrong

  • What Went Well

    • Strong Q4 operational execution: adjusted EBITDA rose to $75.0M; Double E volumes increased 18% q/q to 386 MMcf/d with new 40 MMcf/d 10-year take-or-pay contract supporting Janus Plant connection .
    • Strategic/procedural wins: DJ Basin de-bottlenecking commissioned with ~$5M synergy expected in 2024; new 25,500-acre OGC dedication in Utica; incremental compression fee to begin in Q1 2024 behind SMU .
    • Management confidence and process update: “We believe the strategic review process is entering advanced stages” (CEO Heath Deneke), narrowing alternatives to maximize unitholder value .

  • What Went Wrong

    • Continued commodity price headwinds: lower realized commodity prices in the DJ basin negatively impacted EBITDA by ~$2.0M q/q in Q4 .
    • Barnett segment softness: adjusted EBITDA decreased $0.3M q/q due to ~$0.4M higher OpEx and ongoing customer volume curtailments (~20 MMcf/d) .
    • Elevated interest burden and non-GAAP adjustments: interest expense in Q4 was $36.8M and loss on early extinguishment of debt was $10.9M, weighing on GAAP net income (Q4 net loss of $15.1M) .

Financial Results

MetricQ2 2023Q3 2023Q4 2023
Total Revenues ($USD Millions)$97.9 $121.2 $127.3
Net Income (Loss) ($USD Millions)$(13.5) $3.9 $(15.1)
Common Unit EPS (Basic/Diluted) ($USD)$(1.91)/$(1.91) $(0.27)/$(0.27) $(2.12)/$(2.12)
Adjusted EBITDA ($USD Millions)$58.6 $72.8 $75.0
DCF ($USD Millions)$24.4 $38.5 $37.8
Free Cash Flow ($USD Millions)$9.1 $21.9 $20.4
Consensus Revenue ($USD Millions)N/A – SPGI unavailable*N/A – SPGI unavailable*N/A – SPGI unavailable*
Consensus EPS ($USD)N/A – SPGI unavailable*N/A – SPGI unavailable*N/A – SPGI unavailable*

*Values retrieved from S&P Global were unavailable due to mapping limitations.

Segment adjusted EBITDA ($USD Thousands):

SegmentQ2 2023Q3 2023Q4 2023
Northeast$20,201 $27,751 $28,443
Rockies$16,858 $24,998 $22,404
Permian$5,370 $5,840 $7,924
Piceance$14,365 $15,292 $16,109
Barnett$7,269 $6,084 $5,791
Total Segment EBITDA$64,063 $79,965 $80,671
Less: Corporate & Other$(5,460) $(7,175) $(5,655)
Adjusted EBITDA$58,603 $72,790 $75,016

Operational KPIs (average daily throughput):

KPIQ2 2023Q3 2023Q4 2023
Aggregate Natural Gas (MMcf/d)1,207 1,352 1,419
Aggregate Liquids (Mbbl/d)71 85 81
Ohio Gathering (MMcf/d, gross)781 870 826
Double E (MMcf/d, gross)243 327 386

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($USD Millions)FY 2024N/A$260–$300 Introduced
Capital Expenditures ($USD Millions)FY 2024N/A$30–$40 (Growth $20–$25; Maintenance $10–$15) Introduced
Well Connections (#)FY 2024N/A170–230 Introduced
Natural Gas Throughput (MMcf/d, wholly owned)FY 2024N/A1,255–1,345 Introduced
Rockies Liquids Throughput (Mbbl/d)FY 2024N/A65–75 Introduced
OGC Throughput (MMcf/d, gross)FY 2024N/A775–825 Introduced
Double E Take-or-pay (MMcf/d, contracted)Nov 2024 onward9851,020 Raised (contractual step-up)
Double E Capex ($USD Millions, net to SMLP)FY 2024N/A~$5 (Janus Plant connection) Introduced
Quarterly Adjusted EBITDA ($USD Millions)Q4 2023Reiterated $75–$85 (from Oct update) Result: $75.0 Met low end
Adjusted EBITDA ($USD Millions)FY 2023Original not provided hereRevised to $260–$280 (Aug 2023) Lowered (vs earlier expectations)
DistributionsQ4 2023SuspendedSuspended; preferred accruals continue Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2023)Trend
Strategic alternativesFormal review launched in Oct; reiterated Q4 EBITDA guidance “Entering advanced stages”; strong third-party interest (asset to partnership-level) Progressing toward potential outcomes
Commodity price environmentQ2: headwinds drove delays; DJ margins impacted; Barnett shut-ins 2024 guidance midpoint reflects conservative risking; continued headwinds in natural gas prices Headwinds persist; cautious guidance
DJ Basin de-bottleneckingProject underway; expected to reach peak production in later quarters Commissioned; ~$5M 2024 synergy uplift expected Executed; synergy realization in 2024
Utica compressionInitial phase constructed; incremental compression fee expected Q1 2024 Commissioned; fee begins Q1 2024 Execution completed; revenue uplift
Double E Pipeline commercializationVolumes growing; confidence in long-term outlook; 34% q/q increase in Q3 volumes New 40 MMcf/d 10-year take-or-pay; Janus Plant connection; volumes up 18% q/q Contracting progress; throughput growth
Regional activity (wells, rigs, DUCs)Q3: strong activity (6 rigs, ~165 DUCs), >50 Q4 wells expected Q4: 77 wells connected; 5 rigs; >140 DUCs; Q1 2024 well connections expected Sustained activity; pipeline of connects

Management Commentary

  • “Summit delivered solid fourth quarter 2023 financial and operating results representing run-rate Adjusted EBITDA of $300 million. It has been a very busy quarter, advancing a range of strategic alternatives and executing several key commercial milestones.” — Heath Deneke, CEO .
  • “We believe the strategic review process is entering advanced stages… narrowing the range of alternatives with the goal of maximizing value for the Partnership’s unitholders.” — Heath Deneke .
  • “We recently commissioned our DJ Basin de-bottlenecking projects… extract approximately $5 million of synergies in 2024… executed a new 40 MMcf/d 10-year take-or-pay contract… connecting a new 300 MMcf/d processing plant.” — Heath Deneke .
  • “We announced 2024 adjusted EBITDA guidance range of $260 million to $300 million… despite [commodity price] volatility… we remain encouraged with the long-term prospects for SMLP.” — Heath Deneke .

Q&A Highlights

  • Analysts focused on the strategic alternatives timeline and scope; management indicated the process was in late/advanced stages with multiple pathways (asset-level and partnership-level), maintaining focus on maximizing unitholder value .
  • Clarifications around Double E contract economics and Janus Plant connection indicated supportive returns on ~$6.0M connection cost ($4.2M net to SMLP) and positioning for incremental contracts as upstream volumes ramp .
  • Discussion on 2024 guidance drivers underscored conservative risking for well timing and commodity price volatility; volume growth visibility supported by five rigs and >140 DUCs .
  • Near-term operational catalysts highlighted: Utica compression fees starting in Q1 2024 and DJ Basin synergy capture, contributing to EBITDA trajectory .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2023 EPS and revenue was unavailable due to a mapping limitation; as such, we cannot present formal consensus comparisons at this time.*
  • Given Q4 outcomes (revenue $127.3M; adjusted EBITDA $75.0M), near-term estimate revisions may focus on: (1) Double E contracted step-up to 1,020 MMcf/d in Nov 2024, (2) synergy realization in DJ (~$5M in 2024), (3) incremental compression revenue in Utica, and (4) commodity price risk embedded in guidance .

*Values retrieved from S&P Global were unavailable due to mapping limitations.

Key Takeaways for Investors

  • Strategic alternatives review is a central catalyst; management indicates “advanced stages,” raising the probability of value-realizing transactions (asset sales or partnership-level) .
  • 2024 setup is constructive despite gas price headwinds: adjusted EBITDA guidance of $260–$300M, with visible drivers from DJ synergies, Utica compression fees, and Double E contractual increases .
  • Double E pipeline continues to strengthen: q/q throughput up 18% to 386 MMcf/d in Q4 and a new 10-year take-or-pay contract tied to the 300 MMcf/d Janus Plant — a medium-term volume and EBITDA lever .
  • Operational momentum persists: 77 Q4 well connects, five rigs, and >140 DUCs support throughput growth into 2024, especially in Rockies and Barnett .
  • Balance sheet/liquidity manageable with covenant headroom, but leverage remains elevated (~5.4x); interest expense is a GAAP headwind — watch refinancing dynamics amid strategic outcomes .
  • Non-GAAP reconciliation items are material: loss on early extinguishment of debt ($10.9M) and high interest expense shape GAAP net loss; adjusted EBITDA and DCF better reflect ongoing operations .
  • Near-term trading: headline sensitivity to strategic review updates; medium-term thesis hinges on execution vs 2024 guidance and continued Double E/OGC commercialization .