Why did GAAP net income fall while Adjusted EBITDA hit a record?

GAAP net income dropped $146 million year over year, mostly because of a $214 million unfavorable change in unrealized gains and losses on commodity derivatives, plus higher interest expense and higher depreciation and operating costs from recent acquisitions. Adjusted EBITDA and Adjusted Net Income exclude unrealized derivative marks, so they reflect the growth from acquisitions and expansion projects, which added service revenues of $89 million in the quarter.

Is Williams on track to meet its 2024 guidance?

Yes. Management said it continues to expect 2024 Adjusted EBITDA in the top half of the $6.8 to $7.1 billion range, with growth capex of $1.45-$1.75 billion and maintenance capex of $1.1-$1.3 billion. Year-to-date Adjusted EBITDA of $3.601 billion is up $195 million (about 6%) from the prior year.

What do the Aux Sable and Discovery transactions mean for investors?

Williams exited the Aux Sable joint venture, whose keep-whole structure made distributions sensitive to commodity prices, for $160 million. It also bought the remaining 40% of Discovery and Dauphin Island Gathering Partners for $170 million. Management says these moves reduce exposure to commodity price volatility and give it full control of a growing Gulf of Mexico system.

How healthy is Williams' balance sheet and dividend?

Debt-to-Adjusted EBITDA at quarter end was 3.76x, up from 3.50x a year earlier, and the company targets a 2024 leverage midpoint of 3.85x. The dividend increased 6.1% to $1.90 annualized, and the AFFO coverage ratio of 2.16x for the quarter (2.38x year to date) indicates the dividend is well covered by cash flow.

What are the main risks flagged in the results?

Operating cash flow fell in the quarter because of working capital and derivative collateral changes. Weak natural gas prices pressured the Gas & NGL Marketing Services segment, and Northeast G&P Modified EBITDA declined on lower gathering volumes. Commodity derivative mark-to-market swings also continue to create GAAP earnings volatility.

WMB 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed August 5, 2024. Cited figures are marked; the original filing is the authoritative source.

Williams (WMB) reported second-quarter 2024 results on August 5, 2024, with GAAP net income of $401 million^a ($0.33 per diluted share), down from $547 million from continuing operations a year earlier, and Adjusted EBITDA of a record second-quarter $1.667 billion, up $56 million (3%).

Adjusted EPS was $0.43^b, AFFO rose 3% to $1.250 billion, and the dividend coverage ratio was 2.16x on an AFFO basis. The GAAP decline was driven mainly by a $214 million swing in unrealized commodity derivative gains/losses, higher interest expense from debt activity, and higher costs and depreciation from recent acquisitions. Those items are largely excluded from Adjusted metrics, which is why the adjusted figures improved while GAAP earnings fell.

Operationally, growth came from the Transmission & Gulf of Mexico segment, where the Gulf Coast Storage acquisition and the Regional Energy Access expansion (placed into full service ahead of schedule on August 1) lifted results. Williams also exited its 14% Aux Sable joint venture for $160 million^c and bought Phillips 66's 40% stake in Discovery plus Dauphin Island Gathering Partners for $170 million, bringing its Discovery ownership to 100%. Management reaffirmed that 2024 Adjusted EBITDA will land in the top half of the $6.8 to $7.1 billion guidance range, targeted a 2024 leverage midpoint of 3.85x, and raised the dividend 6.1% to an annualized $1.90.

Weak natural gas prices and a sharp drop in Gas & NGL Marketing Services Modified EBITDA (to negative $126 million^d in the quarter) remain the main watch items. The filing is a furnished (not filed) Item 2.02 notice attaching the earnings press release, with the earnings call scheduled for August 6, 2024.

02—Key points

Key Highlights

Record 2Q Adjusted EBITDA of $1.667 billion, up $56 million (3%) year over year, led by Transmission & Gulf of Mexico (Adjusted EBITDA up $64 million to $812 million).
GAAP net income fell to $401 million ($0.33 diluted EPS) from $547 million from continuing operations, driven by a $214 million unfavorable swing in unrealized commodity derivative gains/losses.
Adjusted EPS of $0.43 (vs. $0.42 in 2Q 2023) and AFFO of $1.250 billion (up 3%); dividend coverage ratio of 2.16x on an AFFO basis.
Gas & NGL Marketing Services Modified EBITDA swung to negative $126 million in the quarter, versus $68 million a year earlier, mainly from unrealized derivative losses.
Portfolio moves: sold 14% Aux Sable JV stake for $160 million and bought Phillips 66's 40% Discovery stake and Dauphin Island Gathering Partners for $170 million, taking Discovery to 100% ownership.
Reaffirmed 2024 guidance: Adjusted EBITDA in the top half of $6.8-$7.1 billion; 2025 Adjusted EBITDA guidance of $7.2-$7.6 billion; dividend raised 6.1% to $1.90 annualized.
Growth projects advancing: Regional Energy Access placed in full service early (August 1), Marcellus South and Uinta Basin expansions in service, and construction started on Louisiana Energy Gateway and Texas to Louisiana Energy Pathway.

03—Questions

Frequently Asked Questions

Why did GAAP net income fall while Adjusted EBITDA hit a record?
GAAP net income dropped $146 million year over year, mostly because of a $214 million unfavorable change in unrealized gains and losses on commodity derivatives, plus higher interest expense and higher depreciation and operating costs from recent acquisitions. Adjusted EBITDA and Adjusted Net Income exclude unrealized derivative marks, so they reflect the growth from acquisitions and expansion projects, which added service revenues of $89 million in the quarter.
Is Williams on track to meet its 2024 guidance?
Yes. Management said it continues to expect 2024 Adjusted EBITDA in the top half of the $6.8 to $7.1 billion range, with growth capex of $1.45-$1.75 billion and maintenance capex of $1.1-$1.3 billion. Year-to-date Adjusted EBITDA of $3.601 billion is up $195 million (about 6%) from the prior year.
What do the Aux Sable and Discovery transactions mean for investors?
Williams exited the Aux Sable joint venture, whose keep-whole structure made distributions sensitive to commodity prices, for $160 million. It also bought the remaining 40% of Discovery and Dauphin Island Gathering Partners for $170 million. Management says these moves reduce exposure to commodity price volatility and give it full control of a growing Gulf of Mexico system.
How healthy is Williams' balance sheet and dividend?
Debt-to-Adjusted EBITDA at quarter end was 3.76x, up from 3.50x a year earlier, and the company targets a 2024 leverage midpoint of 3.85x. The dividend increased 6.1% to $1.90 annualized, and the AFFO coverage ratio of 2.16x for the quarter (2.38x year to date) indicates the dividend is well covered by cash flow.
What are the main risks flagged in the results?
Operating cash flow fell in the quarter because of working capital and derivative collateral changes. Weak natural gas prices pressured the Gas & NGL Marketing Services segment, and Northeast G&P Modified EBITDA declined on lower gathering volumes. Commodity derivative mark-to-market swings also continue to create GAAP earnings volatility.

04—Continue

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