Greetings, and welcome to the Antero Midstream First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Justin Agnew, Director of Finance and Investor Relations. Thank you. You may begin.

Good morning, and thanks for joining us for Antero Midstream's first quarter investor conference call. We'll spend a few minutes going through the financial and operating highlights, and then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at www.anteromidstream.com, where we've provided a separate earnings call presentation that will be reviewed during today's call. Today's call may also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure. Joining me on the call today are Paul Rady, Chairman, CEO and President of Antero Resources and Antero Midstream; Brendan Krueger, CFO of Antero Midstream; and Michael Kennedy, CFO of Antero Resources and Director of Antero Midstream. With that, I'll turn the call over to Paul.

Thanks, Justin. I will start my comments on slide number 3 titled Increasing Lateral Lengths Enhancing AM Economics. The left-hand side of the page illustrates the increase in lateral lengths of completed wells over the last several years. In 2023, the average lateral length for completed wells is expected to be approximately 13,500 feet. During the first quarter, longer laterals and higher completion stages per day drove a 41% increase in freshwater delivery volumes year-over-year. This was despite servicing only two additional wells year-over-year. As shown on the right-hand side of the page, longer laterals improved AM economics by approximately $1.7 million per well for every 1,000 feet of incremental lateral given that there is no additional well connect capital required. Since 2017, lateral lengths have increased by approximately 4,000 feet on average. This has resulted in nearly $7 million of incremental revenue per well, assuming an EUR of 2.0 Bcf per 1,000 feet. The longer laterals, in addition to incremental locations, are a result of AR's consistent organic leasing program. During the first quarter, AR invested $72 million on organic leasehold, adding the equivalent of over 50 drilling locations. With AM servicing 23 well completions during the first quarter, these organic leasing efforts replenished the wells completed and added 27 more locations. Now, let's move to slide number 4, titled Operational Performance at AR. This slide highlights the operational efforts at AR that resulted in record performance at AM. Supported by AM's water business, AR averaged 11 completion stages per day, which is approximately 40% higher than the 2022 average of 8 stages per day. In addition, AR set a new daily company record of 16 stages per day from one completion crew, which is an incredible achievement. Importantly, we continue to be very encouraged by the well productivity…

Thanks, Paul. I'll start my comments by briefly highlighting the year-over-year results on slide 6, titled Strong Start to 2023. During the first quarter, low-pressure gathering and compression volumes increased by 8% and 11%, respectively, compared to the prior year quarter. This year-over-year growth was driven by both organic throughput growth and a full quarter contribution from our bolt-on acquisitions. This allowed us to generate adjusted EBITDA of $242 million, which was a 16% increase year-over-year and a new company record. Capital expenditures declined by 64% from the prior year quarter to $34 million this quarter. This decline was driven by AM completing a majority of its core infrastructure projects, supporting volumetric growth in 2022 and 2023. As a result of increasing EBITDA and declining capital, we transitioned from a $38 million outspend during the prior year quarter to generate $46 million of free cash flow after dividends this quarter. This was a company record for AM, and this cash flow was used to pay down debt. As we look to the remainder of the year, we forecast investing approximately 60% of our capital budget in the second and third quarter, which we expect to result in lower free cash flow during those quarters before picking back up in the fourth quarter. I'll finish my comments on slide 7, titled Operational Performance Drives Increased Guidance for 2023. Driven by the exceptional operational results in the first quarter, Paul discussed in his remarks, we increased our adjusted EBITDA guidance by $20 million to a range of $950 million to $990 million. This was a result of both an acceleration and the completion schedule that will drive slightly higher throughput in the back half of the year and encouraging well productivity. From a freshwater delivery timing perspective, it will result in modestly…

[Operator Instructions] Our first question is coming from the line of Colton Bean with Tudor, Pickering, Holt.

I just wanted to start off on your capital allocation priorities for 2024. I think based on the guidance update this year and the roll off of the rebate framework that you mentioned, it seems likely to hit that leverage target heading into next year. So as we sit here today, can you just frame what your priorities might be as you achieve that leverage target, whether that's further debt reduction, return to distribution growth or ramping share repurchases?

Yes. No, great question, Colton. I think as we look to 2024, we'll certainly evaluate where we're at, at that point. I think if we were at the same price we are at today from a share price perspective, share repurchases would certainly be an attractive option to us. We've talked about it in the past, but AR continues to add organic inventory, which is all dedicated to AM. So that inventory and length of inventory continues to grow, which just makes the share repurchases that much more attractive as you look at just the implied valuation of AM relative to the price today. So, as we look out, share repurchases would be at the top of the stack, but we'll continue to evaluate as we get closer to that 3 times target.

Great. And then shifting to operations. I think Q1 saw a bit of a step-up in gathering OpEx. Do you view that as a new run rate for the business, or was there anything specific to Q1, which might result in lower unit OpEx through the balance of the year?

No. We did have some heavy maintenance that slid into Q1 on some of our compression, so I would not expect that to be a consistent run rate number going forward. We should see some of that come off.

Our next question is coming from the line of Marc Solecitto with Barclays.

So you mentioned the acceleration of completion activity and well performance driving the upward revision in '23 EBITDA guidance. I wonder if you could just comment on the carryforward into 2024 or the 4Q '23 exit rate heading into next year and ultimately whether the anticipated timing again into your leverage target has perhaps been pulled forward at all.

Yes. I mean, I think overall, we communicated we still expect to hit that 3 times target in 2024. So no change on that. We'll make good progress this year with the free cash flow after dividends expected at $140 million, and that will all go to debt paydown. So you'll move down nicely from our 3.7 times leverage at year-end but still expect to achieve that 3 times target in 2024.

Got it. And maybe just to clarify, I think before it was later in 2024, I mean, any acceleration there?

Yes. You may see a quarter acceleration just due to the increase that we've seen this year and the updated guidance.

Our next question is coming from the line of Sunil Sibal with Seaport Global Securities.

So, I just wanted to touch upon the acquisitions that you completed last year. I was curious how has that integration gone and then how is the Crestwood assets contributing -- or contributed to the Q1 results.

Yes. No, the integration's gone terrific so far. We had two acquisitions, Crestwood and then a small acquisition from EnLink on the compression side, fully integrated now. And from a contribution standpoint, roughly $8 million to $9 million from those acquisitions in the quarter. So, nice contribution from those assets, and we'll look to continue with that going forward.

And then, could you remind us how much is your third-party business? Has that changed in any significant way with these acquisitions? I know EnLink assets are all handling Antero’s volumes.

Yes. No change there. They were nice -- as we've talked about, nice bolt-on acquisitions, just given that AR was the primary and sole customer on those assets, driving all the volume, and so very comfortable with the volume projection on those assets moving forward.

Understood. And then one broader question with regard to your 3x leverage. I was kind of curious if you're trying to hit certain credit ratings also. When you look at 3x leverage, how do you kind of zero in on a 3x leverage number when we think about this conceptually?

Yes. I mean, I think if you look at the midstream landscape, 3 times leverage would certainly put you kind of ahead of the pack relative to where others are at. I think we've certainly had conversations with the rating agencies. We talked about the upgrade that AR did receive from S&P in terms of the ratings outlook this morning. And so I think from the AM standpoint, continuing to reduce the debt there should pay off from a rating standpoint down the road as well.

Our next question is coming from the line of Ned Baramov with Wells Fargo.

One on CapEx. So, in light of the lower CapEx budget in 2023 and some of the efficiencies and lower materials cost, could you maybe talk about any potential reductions in the cumulative CapEx backlog through 2027? I believe that's at $950 million.

Yes. So, from that standpoint, I think we'll continue to evaluate. And I think you've seen that every single year at AM, where capital has come in lower than what we've guided. I don't think we have a change in the five-year right now. But as you've seen, we are always working to lower that capital through the efficiencies. And we've talked about it on past calls, but the acquisitions did come with some incremental compression. That's certainly been helpful in terms of being able to reuse that compression and avoid further build-out of compression down the road. So, we'll look to continue to optimize the assets as we move forward and would look to hopefully bring that number down over time as we have historically.

That makes sense. And then one housekeeping item. How much of the 3.17 Bcf per day of low-pressure gathering volumes were from Crestwood? And I guess, similar question on the high-pressure volumes, or what was the Crestwood Marcellus share in the 2.8 Bcf per day of high-pressure volumes?

Yes. So, the Crestwood is really just a low pressure in compression, and so it's about 200 a day as related to the Crestwood assets.

[Operator Instructions] It appears we have no additional questions at this time, so I'll pass the floor back over to Mr. Agnew for any additional concluding remarks.

Thanks, operator, and thanks to everybody for joining today's call. If you have any further questions or follow-ups, feel -- please feel free to reach out.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.