AltaGas Ltd. (ALA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the AltaGas 2020 Annual Shareholders Meeting. I would now like to hand the conference over to your speaker today, Pentti Karkkainen, Chair of the Board. Thank you. Please go ahead.

Thank you very much, Chris. Good afternoon, ladies and gentlemen. I'm Pentti Karkkainen, the Chair of the Board of AltaGas. And on behalf of the directors, it's my pleasure to welcome you to AltaGas' 2020 Annual Meeting of Shareholders. I'm pleased that so many of you are able to join us today despite the challenges we are all facing with COVID-19. The virtual format of this year's meeting is new for us all. As we've experienced, these unprecedented times have required us to adapt to a new ways of doing business. It's important that we all continue to do our part to protect each other from the spread of the virus, and that's the reason we made the decision to host this meeting virtually. Thank you for adapting to this format. Our goal today is to ensure that you're all able to participate in this meeting as you would at our regular annual gathering. As is the case for our in-house -- in-person meetings, only shareholders of record at the close of business on the record date March 12, 2020, and their duly appointed proxy holders may ask questions and vote on the matters being discussed. With me on the webcast today are Randy Crawford, President and Chief Executive Officer; James Harbilas, Executive Vice President and Chief Financial Officer; and Shaheen Amirali, Senior Vice President and Corporate Secretary. Joining us remotely are our other directors and our executive team. In accordance with our bylaws, I will chair today's meeting, and Shaheen Amirali will serve as secretary. In the unlikely event we experience any technical difficulty or disruption, I hereby appoint Randy Crawford to Chair the meeting in my absence so the meeting may continue as planned. I also appoint Stephen Bandola, who joins us today as a representative of our registrar and transfer agent, Computershare Investor Services Inc., to act as scrutineer for the meeting. I now call the meeting to order. I have been advised by Computershare that the meeting materials were duly delivered to shareholders and that a quorum is present. Accordingly, I declare that the meeting has been duly called and is properly constituted for the transaction of business. Computershare statutory declaration of mailing and the scrutineer's report on attendance will be filed by the secretary with the minutes of this meeting. After my introductory remarks, we will proceed with the formal part of the meeting. Following the formal proceedings, we will hear from our President and Chief Executive Officer, Randy Crawford. Finally, if time permits, there will be a brief question-and-answer session. If you wish to ask a question, simply click on the messaging icon and follow the instructions. I encourage you to submit your questions early and one at a time so that we can address them at the appropriate moment during the meeting. Before we begin, please take a moment to review the advisory statement on your screen regarding forward-looking information and non-GAAP measures. Throughout this meeting, we make -- we may make forward-looking statements, which involve certain assumptions and have inherent risks and uncertainties. Actual results could, therefore, differ from these statements. We may also reference certain financial measures that do not have a standardized meaning prescribed by U.S. GAAP. The sudden spread of the COVID-19 pandemic has shaken our personal and professional lives. This is a challenge unlike any in modern history. While it's encouraging to see governments outline plans to reopen economies, we don't yet know how long the pandemic will last and what the long-term implications will be. At AltaGas, we know that we must take it day-by-day, do what we know to be right and keep moving forward. From the Board room to the executive table and across our office and field facilities, our core values have guided and will continue to guide our pandemic response. They are at the heart of how we do business and lay the foundation of how we execute our strategy and priorities. As we navigate through the evolving challenges and find our path forward, we will strive to work safely and responsibly. We'll continue to incorporate strong environmental, social and governance considerations into every aspect of our business. We'll be there for our communities and all our stakeholders as we work through this together. We are an essential service provider, and we understand our role within our communities during these challenging times. The Board receives regular updates from the executive team outlining how we continue to provide essential services while maintaining the health and safety of our employees and the communities in which we operate. As the stewards of the company, the Board continues to provide oversight to ensure decisions aligned with strategic plans and priorities as well as our risk appetite. With Randy at the helm for its first full year in 2019, many of the accomplishments achieved under his leadership greatly strengthened our company, allowing us to withstand the current challenges and remain well positioned for the future. Randy will speak more about AltaGas' specific response to COVID-19 and our accomplishments over 2019 in his remarks. I would like to take the opportunity on behalf of the Board to recognize and thank our executive team for their leadership and direction and our employees for their dedication and tireless efforts. It is because of you that we are united and connected in our efforts and able to continue to deliver results. I would also like to take a moment to acknowledge and thank our retiring Director, Daryl Gilbert, who is not standing for reelection at today's meeting. Daryl, I know that I speak on behalf of the entire Board when I say that it has been a pleasure serving alongside you. You have witnessed firsthand the growth and evolution of AltaGas during your tenure. Thank you for your substantial contributions, valuable insights and your commitment and dedication to our company over the years. We will miss your presence in our Board room. In January of this year, we also welcomed 2 new directors. I would like to introduce Linda Sullivan and Nancy Tower, who are standing for election for the first time today. Together, Linda and Nancy bring over 50 years of utilities experience along with strong financial backgrounds and senior executive officer experience. Their expertise complements our existing Board profile, matching the evolving needs of our company. AltaGas is committed to building long-term sustainable shareholder value, and we are confident that Linda and Nancy will make tremendous contributions towards that objective. We are here today not only to receive your feedback on our items of business, but also to thank you on behalf of the AltaGas family. We thank you, our shareholders, for your ongoing support and trust in us. And with that, we will now move on to the formal part of these proceedings. I would now ask that our Corporate Secretary, Shaheen, address a few housekeeping matters related to the formal proceedings. Shaheen?

Thank you, Pentti. Good afternoon, everyone. Hopefully, your sign-in process went smoothly. I will now go over a few housekeeping items and the rules of conduct related to asking questions and voting. As Pentti mentioned, only registered shareholders and duly appointed proxy holders may ask questions and vote during the formal meeting. If you have questions, select the message icon and type your question within the chat box at the bottom of the messaging screen. Then click the send button. Please be mindful of others by keeping your questions brief, submitting them one at a time and limiting the number of questions you submit. Questions should be of interest to all shareholders and be relevant to the business of the meeting. When reading out a question, I will note the name of the registered shareholder or a proxy holder submitting the question. In order to deal with all questions in a timely fashion, questions of a similar nature will be addressed only once. Questions relating to the formal part of the meeting will be addressed during the formal proceedings. Following Randy's presentation, there will be a brief question-and-answer session where we will address questions of a more general nature. Any questions that we are not able to address during the meeting will be referred to our Investor Relations team for follow-up. To assist us in doing so, please include with your question an e-mail address or a phone number where we may be able to reach it. To ensure an orderly meeting, the Chair retains the discretion and reserves the right to bring discussion on a topic to an end and to refrain from answering matters that do not comply with these rules of conduct. Let's move on to voting. All items for shareholder approval today will be conducted by poll, and all items being pulled will appear on your screen at once. The resolutions that are being tabled today must be approved by a majority of the votes cast. Like in prior years, a significant amount of votes has occurred in advance of the meeting, and the response has been positive. Thank you to the shareholders who voted in advance. We have received your votes and your votes have already been included in the final count. You do not need to vote again at this meeting even if the voting items pop up on your screen. Any vote you do cast at this meeting will revoke your prior vote. If you plan to vote at the meeting, you may choose to vote on each resolution immediately when they appear on your screen or wait to cast your vote following the conclusion of discussion. To vote, simply click on your choice, for or withhold or against as applicable. A confirmation message will appear to show your vote has been received. To change your vote, simply change your selection. If you wish to cancel your vote, press cancel. If you do not submit a vote, the vote will be shown as abstained. The votes you have submitted on each holding item at the time the poll closes will be what is recorded. Totals in favor or against or withheld, as the case may be for each resolution item, will be tallied by the scrutineer once the polls close. And the Chair will report on the outcome of all motions at the end of the formal meeting. During this meeting, there may be moments of delay in the webcast and in our receipt of your questions and moments when the line may be paused while I coordinate with the Chair or scrutineer. We appreciate your patience and understanding should these circumstances arise. For meeting efficiency, the Chair has asked that I make the motion and that James Harbilas, our CFO, who is also on the line today, second the motion. We are both shareholders of AltaGas. As noted in the information circular, the Board recommends voting in favor of each resolution. With the housekeeping matters taken care of, I will turn the meeting back over to the Chair.

Thank you, Shaheen. I now declare the polls open on all resolutions. Each person entitled to vote should see voting choices displayed on their screen. We will now commence with the business of the meeting. The agenda is as set forth in the notice of meeting being: number one, the presentation of financial statements; two, the appointment of auditors; three, the election of directors; and four, the advisory vote on AltaGas' approach to executive compensation. Let's begin with the first item of business. The consolidated financial statements of AltaGas for the year ended December 31, 2019, Management's Discussion and Analysis and the auditor's report thereon have been provided to shareholders. They are available on our website in accordance with notice and access procedures and on AltaGas' page on SEDAR. No action is required by shareholders on this item. The next item of business is to vote on the appointment of Ernst & Young LLP as auditors of AltaGas to hold office until the next annual meeting. Shaheen, can you please make a motion?

Mr. Chair, I move that Ernst & Young LLP be appointed as the auditors of AltaGas until the next Annual Meeting of Shareholders or until a successor is appointed and that their remuneration be fixed by the directors of AltaGas.

Mr. Chair, this is James Harbilas, and I second the motion.

Thank you, both. You've heard the motion, and it is now open for questions. Shaheen, have we received any questions on this motion?

Mr. Chair, we have received no questions on this motion.

There being no questions, we will move on to the next item on the agenda. The next item of business is the election of directors. The Board of Directors of AltaGas has fixed the number of directors to be elected at the meeting at 11. As noted in our information circular, our bylaws contain advanced notice provisions, which provide a procedure to be followed for the nomination of directors at meetings of shareholders. No other nominations were received. Therefore, the only individuals entitled to be nominated as directors at this meeting are the individuals named as nominees in AltaGas' information circular. In addition to myself and Randy Crawford, the following individuals named as nominees in AltaGas' information circular are standing for election: Victoria Calvert, David Cornhill, Allan Edgeworth, Robert Hodgins, Cynthia Johnston, Phillip Knoll, Terry McCallister, Linda Sullivan and Nancy Tower. Each of the nominees has consented to act as a director of AltaGas. With that, the nominees set out in AltaGas' information circular are hereby nominated as directors of AltaGas. In accordance with our majority voting policy, you are being asked to vote for each director separately. Shaheen, can you please make a motion to elect the nominees as directors of AltaGas.

Mr. Chair, I move that the individuals nominated as directors of AltaGas, being Pentti Karkkainen, Victoria Calvert, David Cornhill, Randall Crawford, Allan Edgeworth, Robert Hodgins, Cynthia Johnston, Phillip Knoll, Terry McCallister, Linda Sullivan and Nancy Tower be elected as directors of AltaGas to hold office until the next Annual Meeting of Shareholders or until they cease to be a director by operation of law or until their resignation becomes effective.

Mr. Chair, I second the motion.

Thank you, Shaheen and James. You have heard the motion, and it is now open for questions. Shaheen, have we received any questions on this motion?

Mr. Chair, we have received no questions on this motion.

There being no questions, we will move on to the next item on the agenda. The next item of business is the consideration of the nonbinding advisory vote on executive compensation. Shaheen, can you please make the motion?

Mr. Chair, I move that on an advisory basis and not to diminish the roles and responsibilities of the Board of Directors of AltaGas, the shareholders accept the approach to executive compensation disclosed in AltaGas' management information circular dated March 12, 2020.

Mr. Chair, I second the motion.

Thank you, Shaheen and James. You have heard the motion and is now open for questions. Shaheen, have we received any questions on this motion?

Mr. Chair, we have received a question from [ Marjorique Konipshire ]. The question is shareholders and citizens have taken a beating in lower income, for some no income. How much in percentage and dollars have the officers and directors reduced their compensation?

Thank you very much for your question. We are monitoring the impacts of the current situation very closely. As an essential service provider, our operations are continuing with minimal disruptions, and we continue to maintain a stable outlook to weather the storm. To date, we have not made any adjustments to compensation, which is supported by our independent compensation advisers. But thank you for your question. Shaheen, are there any other questions?

Mr. Chair, we have received another question from [ Marjorique Konipshire ]. The question is, how much will the officers and directors reduce their compensation?

Thank you, again, for your question. As referenced earlier, we are continuing to monitor the current situation very, very closely. And at this point in time, the decision has been made not to make any reductions, but it is something that's being continually reviewed. Any further questions, Shaheen.

Mr. Chair, we have received no further questions on this motion.

With there being no further questions, I will note that, that was the final agenda item. For those of you who have not yet cast your votes, please do so now. I will pause briefly before closing the polls. [Voting]

Thank you. The polls are now closed. We will take a moment to let the scrutineer finish tabulating. I have now received the preliminary results from the scrutineers and can advise that each of the motions was passed by a majority of the votes cast. In particular, Ernst & Young LLP has been appointed as auditors of AltaGas with approximately 97% of the votes cast in favor of the motion. With respect to the election of directors, each of the nominees was elected with approval levels around 95% or more. AltaGas' approach to executive compensation was approved with approximately 93% of the votes cast in favor of the motion. I declare that all motions have been carried. Final voting results will be published on SEDAR following the meeting. With the formal proceedings concluded, I hereby terminate the formal meeting. Before I turn the mic over to Randy Crawford, our President and Chief Executive Officer, I'd like to wish you and your families continued good health and that I hope to see you at next year's AGM. Randy?

Thank you, Pentti, and good afternoon, everyone. I hope you're all doing well and staying safe. As we gather today, the impact of COVID-19 in the world is unavoidable. The sudden emergence and rapid spread of the pandemic has drastically changed the way the world works. The world is facing a challenge, and during this time, we remain focused on doing our part by providing our essential services to our customers. It is during challenging times that our core values: focus on safety, leadership, innovation, resilience and excellence shine through. I take a great deal of pride being part of this organization. At AltaGas, our employees understand the mission and have come together to exhibit these characteristics over the past several weeks. I'd like to take a moment to thank all AltaGas employees for their continued focus, hard work and execution during these challenging times. They are this company's greatest assets. As we focus on execution, the safety of our employees and the community is always our #1 priority. To ensure that our critical operations continue to operate safely and remain available to serve our customers, we implemented several safety measures to protect the health and safety of our people. Thanks to the excellent response of our leadership team and the planning and coordination of our teams across the organization, we were able to mobilize our workforce and protect our people with limited disruptions to our daily business. We continue to monitor developments and have adjusted own operations to work remotely where possible and ensure additional safety protocols are followed so that we can protect our utility workers in the field and our midstream workers across our facilities. The foundation of AltaGas' core values is built on an unwavering commitment to doing what is right. And I am very proud of our response to date. We've recognized this unprecedented health crisis is having an immediate and significant impact on many people in our communities. And that's why we are stepping up to help our customers and our communities when they are most vulnerable. During the state of emergency, we have suspended disconnections and waived late fees to ensure our 1.6 million utility customers have access to natural gas, regardless of their economic circumstances. And with so much strain on the frontline health care workers and the most vulnerable in our communities, we have committed more than $1 million to help support their efforts and needs. These resources have been focused and are being deployed as quickly as possible towards select health and community-based nonprofit organizations across each of our operating communities. Our hope is these steps will help our communities navigate through these unsettled times. 2019 was a transformational and extremely successful year for us here at AltaGas. We exceeded the operational and financial priorities set out in December 2018, which resulted in earnings that were at the top half of our guidance range. This is a direct result of the newly focused strategy and the hard work and effort of our talented teams across the company. We realigned our focus to our stable, high-growth utilities in Midstream business, where we see the best return opportunities and are now well positioned to deliver long-term value to our customers, business partners and shareholders. Our resilience through the crisis is attributed to our diversified business model, which enables us to be well positioned to weather the storm. We also took steps to establish our utility management team, a new management team to address the current needs of our operating and industry-leading utility. We have accomplished significant milestones in a short period due to the exemplary effort and innovative commitment to the new approach of our leadership teams across North America. In 2019, we welcomed 2 members of our leadership team, James Harbilas as Executive Vice President and Chief Financial Officer and Blue Jenkins as Executive Vice President and President of Utilities and President of Washington Gas. Looking back, since I first spoke with you in May 2019, I am proud of the achievements that we have accomplished. We laid out an aggressive strategy designed to delever the balance sheet, regain our financial strength and flexibility and streamline the business to focus on sustainable growth from our highest returning investment opportunities. We successfully executed our balanced funding plan, delevering the balance sheet and solidifying our investment-grade rating, while funding the largest capital program in the company's history at almost $1.4 billion. We did this through responsible execution in major capital projects like RIPET and Marquette Connector, which were delivered on time and on budget. We are now positioned in 2020 with a significantly stronger financial footing, a sharper focus on our core businesses and ability to capitalize on the significant portfolio of organic growth opportunities in front of us. We continue to improve our operational excellence model, which will position AltaGas to deliver on our long-term strategy of being a low-risk, high-growth utility and midstream company. We also focused on showcasing the steps we've taken over the years in building social responsibility through the launch of our first ESG report. Looking ahead, 2020 is all about execution in our core businesses. These are challenging times, but this is a resilient company. Just a year ago, some questioned the stability of AltaGas. But we had vision. We evaluated and reassessed our priorities and then executed in a disciplined way. As a result, we are now stronger, more focused and well positioned to navigate through these difficult times. We have a unique investment proposition that combines stable and predictable cash flows of our Utility business with higher growth midstream assets. We continue to believe this strategy is the right one, and the quality and diversification of our assets positioned us to deliver sustainable, attractive risk-adjusted returns over the long run. Our strategy is straightforward, leverage the unique position of our high-quality utilities and midstream businesses to utilize our expertise along the energy value chain to connect customers to markets in North America and abroad. In 2020, we expect approximately 13% year-over-year growth, driven by core businesses, which more than offsets the lost EBITDA associated with the 2019 noncore asset sales. Our midstream strategy is underpinned by the growing demand for energy in Asia and our first-mover advantage at RIPET. As we continue to leverage our unique structural advantage to export cleaner energy to Asia, we are also contributing to the displacement of more carbon-intensive forms of fuel like coal and wood for heating and cooking. Shifting to the Utilities segment. Through the ownership in Washington Gas Light, we are uniquely positioned to capitalize on one of the higher annual rate base growth rates in the United States at 8% to 10%, underpinned by the replacement of aging infrastructure, innovative rate designs and growth in our customer base. Our strategy is centered on safety and reliability, capital discipline and filling the rate base through accelerated replacement programs. We will continue to drive towards a performance-based culture to enhance our capital efficiency, increase returns and maintain affordable rates for our customers. Over the past several months, our teams have continued to execute across the board. Our distribution in midstream systems continue to perform in line with our excellent safety and reliability standards. Capital investments we made to build a stronger pipeline and technology infrastructure has allowed us to leverage automation and manage the work remotely, minimizing our in-person interaction. One of our most important core values is our commitment to operational excellence in all that we do. Our operations and construction teams continue to perform exceptionally, keeping our construction program on schedule and on budget. Despite the challenges created by COVID-19, our strong first quarter financial results reflect the stability and resiliency of our core businesses. Our utilities and midstream businesses continue to perform well, providing predictable and reliable earnings despite the disruption to global markets. We held our quarterly earnings call yesterday and shared how we were able to deliver strong operating performance while navigating the challenges of the pandemic. Among the highlights we shared, our financial performance for the first quarter reflects the strong operating performance across all our businesses with normalized EBITDA of $499 million. Utilities segment EBITDA increased 10% over the first quarter of 2019, underpinned by rate base growth, higher achieved returns through rate case settlements in 2019, increased utilization of accelerated pipeline programs and lower operating costs. Strong first quarter Midstream segment performance was underpinned by contributions in the Ridley Island Propane Export Terminal, which continues to see strong demand for Canadian propane from Asia, averaging 2 ships per month for the quarter. Our outlook remains intact, with anticipated normalized EBITDA in the range of $1.275 billion to $1.325 billion and normalized earnings per share of $1.20 to $1.30. I would just like to wrap up my comments today by taking a moment to thank our wonderful field employees who across North America are on the front lines, maintaining operations and serving our customers and communities through these difficult times. I am so incredibly proud of the people we have in our company and how our teams have rallied together to respond to the pandemic. None of the milestones we have achieved to date or those we are sure to achieve in the future would be possible without our very talented and hardworking team, and I want to thank them for their incredible efforts. I also would like to extend my thanks to our Board for their guidance, and to you, our shareholders, for supporting our company and for taking the time to join us today. With that, I will open up the floor to questions. Shaheen, have you received any questions?

We have received no questions.

So we have reached the end of our question-and-answer session. Your views and feedback are important to us. We encourage you to reach out to us throughout the year with your questions by contacting our Investor Relations department or if you have questions for governance related by contacting the Board or in accordance with our Board shareholder engagement policy. Once again, thank you all for taking the time to join us today. Stay safe.

Ladies and gentlemen, this concludes today's meeting, and you may now disconnect. Thank you.