Breaking Down Matador Resources Company (MTDR) Financial Health: Key Insights for Investors

Understanding Matador Resources Company (MTDR) Revenue Streams

Understanding Matador Resources Company’s Revenue Streams

Matador Resources Company generates revenue primarily through the exploration and production of oil and natural gas, as well as midstream services. The following sections provide a detailed breakdown of these revenue sources.

Revenue Breakdown by Source

Year-over-Year Revenue Growth Rate

For the nine months ended September 30, 2024, total revenue increased by 15.0% compared to the same period in 2023, where total revenue was approximately $1.95 billion. This growth was primarily driven by increased production levels and higher realized oil prices.

Contribution of Different Business Segments to Overall Revenue

The exploration and production segment contributes the majority of total revenue, accounting for approximately 99.5% of total revenues in 2024. The midstream segment, while smaller, also plays a crucial role by providing additional revenue through services such as processing and transportation.

Significant Changes in Revenue Streams

In 2024, the company completed the Ameredev acquisition, which is expected to enhance production capabilities and revenue potential. This acquisition had an effective purchase price of approximately $1.831 billion. The increase in production was evident as the average daily oil production rose by 29% year-over-year.

Revenue Analysis Summary

Overall, Matador Resources Company has shown strong revenue growth driven by increased production and strategic acquisitions. The focus on oil and natural gas production remains central to its business model, with midstream services providing supplementary revenue streams.

For the nine months ended September 30, 2024, the breakdown of revenues is as follows:

A Deep Dive into Matador Resources Company (MTDR) Profitability

A Deep Dive into Matador Resources Company's Profitability

Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was approximately 29.8%, compared to 30.2% for the same period in 2023.

Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, was 21.5%, an increase from 19.8% in the prior year.

Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, was 29.7%, up from 26.8% for the same period in 2023.

Trends in Profitability Over Time

For the three months ended September 30, 2024, net income attributable to shareholders decreased by $15.4 million to $248.3 million, compared to $263.7 million for the same period in 2023.

For the nine months ended September 30, 2024, net income attributable to shareholders increased by $79.3 million to $670.8 million, compared to $591.5 million for the same period in 2023.

Comparison of Profitability Ratios with Industry Averages

Analysis of Operational Efficiency

Cost Management: Total expenses for the nine months ended September 30, 2024, increased to $1.98 billion, compared to $1.54 billion for the same period in 2023.

Gross Margin Trends: The gross margin per barrel of oil equivalent (BOE) for the nine months ended September 30, 2024, was approximately $33.00, compared to $36.00 for the same period in 2023.

Depletion, Depreciation, and Amortization (DD&A): DD&A expenses for the nine months ended September 30, 2024, were $681.1 million, up from $496.6 million for the same period in 2023.

General and Administrative Expenses: G&A expenses for the nine months ended September 30, 2024, were $86.4 million, an increase from $80.9 million in 2023, but on a per BOE basis, G&A decreased to $1.96 from $2.38.

Profitability Metrics Summary

Debt vs. Equity: How Matador Resources Company (MTDR) Finances Its Growth

Debt vs. Equity Structure

Matador Resources Company, as of September 30, 2024, has a total debt of approximately $2.15 billion, which includes long-term and short-term borrowings. The company maintains a debt-to-equity ratio of 0.44, significantly lower than the industry average of approximately 1.0, indicating a conservative approach to leveraging its capital structure.

Overview of Debt Levels

The company’s debt structure comprises both short-term and long-term obligations. At the end of Q3 2024, Matador had:

• Short-term debt of $1.54 billion in borrowings under its Credit Agreement.
• Long-term debt in the form of senior unsecured notes totaling $2.15 billion.

Debt-to-Equity Ratio

The calculation of the debt-to-equity ratio is as follows:

• Total Debt: $2.15 billion
• Total Equity: $4.87 billion
• Debt-to-Equity Ratio: 0.44

This ratio reflects a balanced approach when compared to the industry standards, which highlight a more aggressive leveraging strategy among peers.

Recent Debt Issuances and Refinancing Activity

In September 2024, Matador issued $750 million in senior unsecured notes due in 2033 at an interest rate of 6.25%. This issuance was part of a refinancing strategy aimed at reducing the cost of capital and extending the maturity profile of its debt. Additionally, the company undertook:

• A $250 million term loan to fund the Ameredev Acquisition.
• Amendments to its Credit Agreement, increasing borrowing commitments from $1.50 billion to $2.25 billion.

Balancing Debt Financing and Equity Funding

Matador has effectively balanced its growth financing through a mix of debt and equity. In March 2024, the company completed a public offering of 5.25 million shares, generating approximately $342.1 million in net proceeds, which were allocated towards general corporate purposes, including debt repayment and acquisitions.

This strategic mix of debt and equity funding aids in maintaining liquidity while supporting ongoing operational and capital expenditures. The company’s proactive refinancing and capital raising efforts further solidify its financial health and operational growth potential in the competitive energy sector.

Assessing Matador Resources Company (MTDR) Liquidity

Assessing Matador Resources Company's Liquidity

Current and Quick Ratios: As of September 30, 2024, Matador Resources Company reported a current ratio of 1.09, calculated using current assets of $1.041 billion and current liabilities of $958 million. The quick ratio, which excludes inventories from current assets, is approximately 0.73.

Analysis of Working Capital Trends: The working capital position shows an increase from the previous year, with working capital of $83 million as of September 30, 2024, compared to $57 million at the end of 2023. This reflects improvements in operational cash flow and effective management of short-term liabilities.

Cash Flow Statements Overview

Operating Cash Flow: For the nine months ended September 30, 2024, net cash provided by operating activities was $1.672 billion, up from $1.249 billion in the same period of 2023. This increase was driven by higher oil and natural gas production and realized prices despite lower natural gas prices.

Investing Cash Flow: The net cash used in investing activities for the same period was ($3.281 billion), which includes significant expenditures related to the Ameredev Acquisition totaling $1.831 billion.

Financing Cash Flow: Cash provided by financing activities was $1.580 billion, compared to $928 million in 2023, reflecting increased borrowings to finance acquisitions and other capital projects.

Liquidity Concerns and Strengths

Matador's liquidity remains robust with a cash balance of $23.3 million and restricted cash of $53.7 million as of September 30, 2024. The company's total debt stood at $3.055 billion, with a debt-to-equity ratio of 0.62, indicating manageable leverage levels.

Is Matador Resources Company (MTDR) Overvalued or Undervalued?

Valuation Analysis

To assess whether the company is overvalued or undervalued, we will analyze key financial ratios such as the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, along with stock price trends over the last 12 months, dividend yield, and analyst consensus on stock valuation.

Price-to-Earnings (P/E) Ratio

The company reported a net income attributable to shareholders of $670.8 million for the nine months ended September 30, 2024, translating to earnings per diluted share of $5.44. As of October 2024, the stock price was approximately $60.00, which yields a P/E ratio of:

P/E Ratio = Stock Price / Earnings Per Share = $60.00 / $5.44 ≈ 11.04

Price-to-Book (P/B) Ratio

The company reported total assets of $10.62 billion and total liabilities of $6.47 billion as of September 30, 2024. The book value of equity can be calculated as:

Book Value of Equity = Total Assets - Total Liabilities = $10.62 billion - $6.47 billion = $4.15 billion

The company had approximately 124.88 million shares outstanding. Thus, the book value per share is:

Book Value Per Share = Book Value of Equity / Shares Outstanding = $4.15 billion / 124.88 million ≈ $33.25

Using the stock price of $60.00, the P/B ratio is:

P/B Ratio = Stock Price / Book Value Per Share = $60.00 / $33.25 ≈ 1.80

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The company reported Adjusted EBITDA of $1.66 billion for the nine months ended September 30, 2024. The enterprise value (EV) can be calculated as follows:

EV = Market Capitalization + Total Debt - Cash and Cash Equivalents

Assuming total debt is approximately $2.15 billion and cash is $0.15 billion (not explicitly stated but assumed for calculation), the market capitalization is:

Market Capitalization = Stock Price x Shares Outstanding = $60.00 x 124.88 million ≈ $7.49 billion

Thus, the EV is:

EV = $7.49 billion + $2.15 billion - $0.15 billion ≈ $9.49 billion

The EV/EBITDA ratio is then calculated as:

EV/EBITDA = EV / Adjusted EBITDA = $9.49 billion / $1.66 billion ≈ 5.72

Stock Price Trends

Over the past 12 months, the stock price has seen fluctuations ranging from a low of approximately $45.00 to a high of $75.00. As of October 2024, the stock price stands at $60.00, indicating a moderate performance within this range.

Dividend Yield and Payout Ratios

The company declared a quarterly dividend of $0.20 per share in each of the first three quarters of 2024. With a current stock price of $60.00, the annual dividend yield is:

Dividend Yield = Annual Dividend / Stock Price = ($0.20 x 4) / $60.00 ≈ 1.33%

The dividend payout ratio can be calculated as:

Payout Ratio = Dividends / Net Income = ($0.20 x 4 x 124.88 million) / $670.8 million ≈ 11.89%

Analyst Consensus

As of October 2024, the consensus among analysts regarding the stock is a Hold, with a few recommending it as a Buy based on the company's strong production metrics and solid financial health.

Key Risks Facing Matador Resources Company (MTDR)

Key Risks Facing Matador Resources Company

Matador Resources Company faces several internal and external risks that could impact its financial health. Understanding these risks is crucial for investors considering the company's stock.

Industry Competition

The energy sector is highly competitive, particularly in oil and natural gas production. As of September 30, 2024, Matador's total oil equivalent production was 15.8 million BOE for the quarter, with an average daily production of 171,480 BOE per day. This production includes 100,315 Bbl per day of oil and 427.0 MMcf per day of natural gas. Competitors may influence pricing and market share, which can adversely affect revenue.

Regulatory Changes

Changes in environmental regulations and energy policies can pose significant risks. For instance, the company recorded an effective income tax rate of 26% for the nine months ended September 30, 2024, which was impacted by state taxes, primarily in New Mexico. Regulatory compliance can increase operational costs and limit operational flexibility.

Market Conditions

Fluctuations in oil and natural gas prices directly impact revenue. The average daily oil production increased by 29% year-over-year, while the company reported lower realized prices compared to previous periods. The volatility in commodity prices can lead to unpredictable revenue streams.

Operational Risks

Operational risks include the potential for equipment failures, safety incidents, and supply chain disruptions. The company incurred increased depletion, depreciation, and amortization expenses of $681.1 million for the nine months ended September 30, 2024, compared to $496.6 million in the same period of 2023. Such escalations can squeeze margins and affect profitability.

Financial Risks

Matador reported an interest expense of approximately $111.7 million for the nine months ended September 30, 2024, which reflects an increase from $85.8 million in the prior year. Rising interest rates and increased debt levels can increase financial strain and impact cash flow.

Strategic Risks

The acquisition strategy can also pose risks. The Ameredev acquisition was completed at an aggregate purchase price of approximately $1.831 billion, funded through a combination of cash and debt. Integrating new assets and achieving anticipated synergies can be challenging and may not materialize as planned.

Future Growth Prospects for Matador Resources Company (MTDR)

Future Growth Prospects for Matador Resources Company

Analysis of Key Growth Drivers

The primary growth drivers for Matador Resources Company include strategic acquisitions, increased production capacity, and operational efficiencies. The recent acquisition of Ameredev, completed on September 18, 2024, for approximately $1.831 billion, is a significant contributor to expanding their asset base in the Delaware Basin.

Future Revenue Growth Projections and Earnings Estimates

For the nine months ended September 30, 2024, Matador reported total revenues of $2.534 billion, up from $1.970 billion in the same period of 2023. Analysts project a continued increase in oil and gas revenues driven by production growth and higher realized prices. The company's net income attributable to shareholders for the same period increased to $670.8 million, or $5.44 per diluted share, compared to $591.5 million, or $4.93 per diluted share in 2023.

Strategic Initiatives or Partnerships That May Drive Future Growth

Matador has initiated several strategic initiatives, including expanding its drilling operations from seven to nine rigs in the Delaware Basin as of 2024. Additionally, the completion of new natural gas pipeline connections enhances their midstream capabilities, which is expected to improve operational efficiencies and support future growth.

Competitive Advantages That Position the Company for Growth

Matador's competitive advantages include its extensive acreage position of approximately 196,200 net acres in the Delaware Basin, which is one of the most productive oil regions in the U.S. The company has significantly increased its production, with average daily oil production reaching 100,315 Bbl per day, a 29% year-over-year increase. Furthermore, their operational efficiencies have resulted in lower unit production costs, enhancing profitability margins.

As of September 30, 2024, the total assets of Matador Resources stood at $10.623 billion, reflecting a robust balance sheet to support ongoing growth initiatives.

Article updated on 8 Nov 2024

Resources:

• Matador Resources Company (MTDR) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Matador Resources Company (MTDR)' financial performance, including balance sheets, income statements, and cash flow statements.
• SEC Filings – View Matador Resources Company (MTDR)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.