AltaGas Ltd. (ALA) Earnings Call Transcript & Summary

The Chair of the Board of AltaGas. And on behalf of the directors, it's my pleasure to welcome you to AltaGas' 2023 Annual General Meeting of Shareholders. -- one that we are pleased to be hosting in person as well as virtually. Thank you for joining us. I'd like to begin by welcoming David Anderson, AltaGas' Senior Vice President, Environment, Health and Safety to the podium to provide our safety briefing.

Thank you, Pentti. For those of you who are joining us in person, there are two main emergency exits, one at the back of the room and then one more adjacent and to your right. In the event of a fire or an emergency, a high-pitch alarm will sound. Please remain where you are and wait for further instruction. In the unlikely event that we are required to evacuate, please proceed through the rear doors in an orderly fashion, and the on-site fire wardens will direct you towards the nearest emergency exit. Thank you. And back to you, Pentti.

Thank you, Dave. I'd now like to take the opportunity to introduce the other gentlemen with me on the stage to date. Randy Crawford, President and Chief Executive Officer; James Harbilas, Executive Vice President and Chief Financial Officer; and Brad Grant, Executive Vice President, Chief Legal Officer and Corporate Secretary. Other directors and members of our executive team are joining us either in person or virtually today. We join you from Brookfield Place in Downtown Calgary which is situated on the traditional land where the black foot or [indiscernible] would gather with us Tsuut’ina and [indiscernible], consisting of the Chiniki, Berispa and Good Stoney bands. We recognize that the matination of Alberta Region 3 called [indiscernible] or Treaty 7 have called this home. And over time, other communities and people have come together to form community in the Treaty 7 region of Southern Alberta. Calgary where the bow and the Elbow River meet is traditionally known as the exit to the Blackfoot when [Chiba] to the [indiscernible] and [Guzzi] to the Tsuut’ina. Some of you are also joining us from our virtual platform, and I would like to take a moment to acknowledge the importance of the lands, which we each called home. We do this to reaffirm our commitment and responsibility in improving relationships between nations and to improving our own understanding of local indigenous peoples and their cultures. From coast to coast to coast, we acknowledge the ancestral territory of all the indigenous peoples that call this land home. Thank you for your continued partnership as we work together to build a prosperous and sustainable communities and a broader society of which we can be proud. I will make a few introductory remarks, and then we will proceed with the formal business of the meeting. We will then hear from our President and Chief Executive Officer, Randy Crawford. And if time permits, there will be a brief informal question-and-answer session. Please take a moment to review the posted advisory statement regarding forward-looking information and non-GAAP measures. Throughout this meeting, we may make forward-looking statements, which involve certain assumptions and have inherent risks and uncertainties. Actual results could differ from these statements. We may also reference certain financial measures that do not have a standardized meaning prescribed by U.S. GAAP. After another active year as a company and a board, we are excited to meet with our shareholders and have the opportunity to do so in person and virtually this year. Governance and leadership are the foundation upon which are all sustainable purpose-built enterprises grow and prosper. Robust governance, the ability to challenge each other and to listen to each other starts with his trust and respect to each other. It's from this foundation that the Board works with leadership to achieve AltaGas' long-term strategic objectives and deliver growth and sustainable value for all our stakeholders. As the stewards of our company, the Board of Directors provides the necessary foresight oversight and insight to guide the organization and ensure the highest ethical standards are maintained at all times. Our core values embody how we define success at every level of our organization and promote the highest level of personal conduct and ethical standards. They are at the heart of how we do business, what we stand for as a company and lay the foundation to execute our strategy and priorities. The Board considers succession planning for the Board, its committees, the CEO and other executive officers, one of its most critical functions as strong leadership is core to achieving our strategy and delivering sustained value. For our stakeholders, these are the principles that are guiding the Board in our CEO transition process. Within the coming weeks, we look to name our next President and CEO, and an individual that best demonstrates the values, strategic vision, experience and leadership attributes that connect stakeholders and strengthens relationships capable of accelerating AltaGas' business strategy towards a bright future. The Board expects to complete the CEO succession within the previously announced timeline of the first half of 2023. I'd like to specifically thank Randy Crawford, for his leadership and his many contributions to AltaGas over the past 4.5 years. Thank you, Randy. I would also like to recognize and thank my colleagues on the Board for your stewardship and sound counsel as we collectively execute our responsibilities. Today is national day of mourning for Canada and Workers Memorial Day in the United States. I'd like to take a moment to pause to remember those across our nations who have lost their lives or suffered injury or illness while on the job. Work safely, think responsibly. This is our first and most important core value, and we remind ourselves today and every day to think about safety in every action we take. I would like to thank our employees, including our senior leaders across North America for your dedication and work ethic demonstrating leadership in the work you do every day in alignment with our values and mission. Throughout our operations, we are playing a vital role within the larger energy ecosystem that keeps the global economy moving forward, and is powering the possible within our society and in a safe, reliable and affordable manner. As an essential service provider with operations across North America, AltaGas is charged with the responsibility of delivering safe, reliable and affordable energy to approximately 1.5 million utility customers as well as ensuring that our midstream, including our global exports continue to connect and deliver natural gas and natural gas liquids to domestic and global consumers. What we do is important, and we take this responsibility seriously. In the days ahead, you can expect the same focus for AltaGas. We will hold ourselves to account. We will live by a strong governance philosophy and commitment and we'll be focused on making long-term decisions that take into account the interest of all stakeholders and right holders with whom we partner. We are excited about the road ahead, and we look forward to progressing on it with you. We would like to thank you on behalf of the AltaGas family for your continued support and ongoing trust in us. And with that, we will now move on to the formal part of these proceedings. Before we start with our first item of business, I would ask that Brad Grant, our Chief Legal Officer and Corporate Secretary, address a few housekeeping matters related to the formal proceedings. Brad, over to you.

Thank you, Pentti, and good afternoon, everyone. This meeting will be conducted in accordance with our rules of conduct, as outlined on the back of the card you received when you came into the meeting today and as you will see on the screen in front of you. [Operator Instructions]. Next, in accordance with these rules, guests who are not registered shareholders or proxy holders are welcome to observe, but we ask that they refrain from voting or addressing the meeting. Only shareholders of record at the close of business on the record date, March 8, 2023, and their duly appointed proxy holders may ask questions and vote on the matters being discussed. They will have received a blue card when they registered in person today or a control number to access the voting and messaging platform online. The Chair will present a number of motions during the formal part of the meeting. We ask that questions during this part of the meeting be kept brief and directly relate to the items being considered. Please reserve any other questions you may have for the Q&A session at the end of the meeting [Operator Instructions]. The question will be put in the queue and addressed at the appropriate moment during the meeting with questions about meeting business answers during the formal portion of the meeting and others brought forward during the Q&A session. We encourage you to submit questions early, please. [Operator Instructions] Once you are recognized by the Chair, please begin by stating your name and confirming your status as a registered shareholder or proxy holder with your blue card in hand, please. This will assist us in correctly recording the minutes of this meeting. When I read out questions submitted virtually, I will also note the name of the registered shareholder or proxy holder submitting the question. In order to deal with all questions in a timely fashion, questions of a similar nature will be answered only once. To ensure an orderly meeting, the Chair retains the discretion and reserves the right to refrain from addressing matters that do not comply with out rules of conduct. With that background information shared, we will move on to how to vote at the formal meeting. All items for shareholder approval today will be conducted by the poll -- by poll through the Lumi platform, whether you are here in person or online. When you register in person, you would have received a Lumi voting device. All items being polled will appear on your screen at once. The resolutions that are being tabled today must be approved by a majority of votes cast. As in prior years, a significant amount of voting has occurred in advance of the meeting, and there has been a very positive response. Thank you to our shareholders who have 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 today. And any vote you cast here will revoke your prior vote. If you plan to vote today, you may choose to vote on the resolutions immediately when they appear on your screen or you can wait to cast your vote following the conclusion of the discussions. 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 don't submit a vote, the vote will be shown as abstained. The votes you have submitted on each polling 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. For meeting efficiency, the Chair has asked that I make the motions and that James Harbilas, our Chief Financial Officer, second the motions. We are both shareholders of AltaGas. As noted in the information circular, the Board recommends voting in favor of each resolution. With those housekeeping matters taken care of, I will now turn it back over to the Chair.

Thank you, Brad. In accordance with our bylaws, I will chair today's meeting, and Brad Grant will serve as Secretary. I also appoint [indiscernible] and Christopher Parson, who joined us today as representatives 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 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. 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 the presentation of financial statements. The appointment of auditors, the election of directors, 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, 2022, 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 the 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. Brad, 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 the 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 a discussion. Brad, are there any questions on the virtual platform?

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

Thank you, Brad. With there being no further questions, we will move on to the next item on the agenda. Election of directors. 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 10. 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, John Al Duplantier, Robert Hodgins, Cynthia Johnson, Philip Noell, 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. Brad, 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 Kirana, Victoria Calvert, David Cornhill, Randall Crawford, John L. Duplantier Robert Hodgins, Cynthia Johnston, Phillip Knoll, 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, Brad and James. You have heard the motion, and it is open for a discussion. Brad, I see no questions from the floor. Are there any from our shareholders on the virtual platform?

Mr. Chair, we've received no questions on this motion.

Thank you, Brad. With there being no questions, we will move on to the next item on the agenda. The final item of business is the consideration of the nonbinding advisory vote on executive compensation. Brad, 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 8, 2023.

Mr. Chair, I second the motion.

Thank you, Brad and James. You've heard the motion, and it is open for discussion. Seeing no questions from the floor. Brad, can you let us know if there's any questions from the virtual platform.

Mr. Chair, we've received no questions on this motion.

Thank you, Brad. And with there being no questions, we will move on to the next item on the agenda. 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. I declare that all motions have been carried. Final voting results will be published on SEDAR following the meeting. As there is no further business, I would like to call for a motion terminating the meeting.

Mr. Chair, I move that the meeting be terminated.

Mr. Chair, I second the motion.

Thank you. Thank you both. All those in favor of the motion, please raise your hand. I declare the motion carried and the formal part of the meeting at an end. With the formal proceedings concluded, I would ask Randy Crawford, our President and Chief Executive Officer, to provide a business update. Randy?

Good afternoon, everybody, and thank you for taking the time today after a really busy year. We're always excited to reconnect with our shareholders and to provide regular updates on the business. As I said when I joined AltaGas over 4 years ago, I saw a lot of opportunity here, and we see that playing out in operational and financial results we've delivered over the past 4 years. I also believe that the company is well positioned for a tremendously bright future. With marked growth opportunities across our utilities and midstream platforms. At the utility, we have been investing to modernize our network to reduce operating costs while driving meaningful reductions in emissions and improving reliability, which benefits customers, investors and the environment. Our continued investments in our infrastructure and our people are positioning the asset for the fuels of the future. And in our Midstream business, we continue to leverage our core competencies and remain focused on connecting customers and markets for today and tomorrow as we drive the growth in our global export platform. Our dedicated focus on execution, the safety of our employees and the community in which we operate is always our #1 priority. Our focus remains on ensuring that our critical infrastructure operates safely, reliably and continues to provide affordable energy to our customers when they need it. So we're driven by our mission and our vision. Since joining ALA 4 years ago, one of my first steps was to illuminate our core values and leadership competency model. As I firmly believe it is our unwavering commitment to our core values, mission and through it all, doing what is right that has guided us successfully through these unprecedented times. Our core values also reinforce AltaGas commitment to integrated strong environmental health and safety, social and governance performance into all aspects of our business. See our approach to governance and how we invest and support our people, customers and communities and the environment allows us to build a sustainable and financially successful future. These efforts support our strategy by allowing us to be more responsive to our customers' needs, better manage risk and attract, motivate and retain talent. We need to bring value to our communities that we serve. Now the foundational principles of our mission are focused on safe and reliable operations, improving quality of life through the delivery of critical energy to our customers and honoring our social and moral contract, and we understand and we firmly believe that access to energy improves quality of life. And through access to abundant affordable energy, we can through economic expansion, and we can create jobs. So this next slide, I would use if I had only one in the presentation, you can call it my elevator pitch slide. With this slide, I can tell you everything you want to or need to know to make what I believe would be a highly rewarding investment in AltaGas. When I came to AltaGas in late 2018, we said we would reposition the platform. We transition to a lower-risk, high-growth utilities and midstream platform. We would focus on operational excellence in our core assets, promote high performers next-generation leaders, add key talent where needed. We upgrade the systems, processes and adopt digitalization opportunities around improving our core operations. And we said we'd execute our non-core asset sales to delever the balance sheet, and we would avoid equity issuances to protect our shareholders' upside. Well, today, I'm happy to report that we have successfully reposition the business and now operate two strong businesses. By staying the course with our financial approach, our debt-to-EBITDA ratio is approaching 5x and heading lower, and we are now financially healthy, and we can focus on the growth opportunities in front of us. As we move forward, we will continue to leverage our core competencies to build upon that strong foundation before as we continue to innovate and renovate our approach to business. In midstream -- in our midstream business, we are focused on our unique core competency, and the most valuable capability, our ability to export. We will continue to capitalize on the tremendous opportunities to export responsibly produce Canadian LPGs to Asia to meet the rising demand for lower carbon-intensive products. Leveraging our first-mover advantage as the first and only company with the capability to export LPG to Asia through very large gas carriers. We have eclipsed 100,000 barrels a day threshold, and we have a vision to grow our export capability to 200,000 barrels a day. So the proactive steps that we have taken over the past 4 years have solidified our export platform. We are now positioned to take our export business to the next level. And we are also pleased to announce the execution of definitive agreements for a new 50-50 joint venture with our partner, OPAP, a couple of days ago. The agreement provides the exclusive opportunity for further evaluation of the development of Ridley Island energy export facility or REEF, as we like to call it, which is a large-scale LPG and bulk liquids terminal with marine infrastructure on Ridley Island, British Columbia, Canada. Now REEF will have the capability to facilitate the export of LPGs, methanol and other bulk liquids that are vital for everyday light. Reef has been granted to key federal and provincial permits to construct a state-of-the-art and highly efficient facility. The project would be developed on lands administered by the Prince Rupert Port Authority and is adjacent to AltaGas existing Ridley Island Propane Export Terminal, which has been in operation since April 2019. So in approximately 4 years since RIPET was first commissioned, we have steadily grown our global LPG export capabilities, which, when combined with Ferndale, AltaGas now connects more than 12% of Japan's annual propane and 12% of South Korea's LPG imports. The new Ridley Island Energy export facility partnership agreement with Vopak positions AltaGas to further expand this business and provide access for our valued upstream customers to key downstream markets in Asia. At utility, we continue to make investments in our network on behalf of our customers and execute our regulatory strategy to update our rates on a timely basis to reflect the current cost environment and including the cost of capital. We continue to believe we can grow our utility rate base organically at 8% to 10%. The investments to modernize our network, reduce operating costs while driving meaningful reductions in emissions and improve reliability, which benefits both our customers and the environment. And we're positioning of asset for the fuels of the future. And as we continue the modernization of our pipeline network, we focus on opportunities to reduce our environmental footprint as that is our license, our social license to grow this business. So looking back at the past year, operationally, our businesses performed exceptionally well. Our 2022 financial results were within the upper half of our guidance ranges with normalized earnings per share growth of 10% year-over-year and normalized EBITDA growth of 5%. Our Utilities business achieved 21% year-over-year growth in EBITDA through the ongoing capital investment to core infrastructure on behalf of our customers, also the additions of new meters through new customer connects and team's strong asset optimization activity. In our midstream business, we significantly advanced our global export capability. With the acquisition of the remaining equity stake in Petrogas in the Ferndale facility, this reaffirmed our position as the leading provider of LPG exports off the West Coast. Our export platform it finished the year delivering 14% year-over-year increase in export volumes, delivering over 100,000 barrels a day of propane and butane to Asia. Our operating results built upon a strong foundation of growth that we delivered during the past 4 years and is a testament to the quality and strategic value of the two businesses. The successful execution and strong value proposition is visible and seen in the strong '22 financial results and was further highlighted in our first quarter results of 2023 that we released on Wednesday. So in closing, this will be my last AGM as CEO of AltaGas, and I want to take this opportunity to express my gratitude to the management team, the dedicated employees of AltaGas, that their unwavering support, commitment and hard work during my tenure. Together, we transformed ourselves into a premier integrated West Coast LPG export company and a stand-alone highly efficient utilities business. During this journey, we streamlined the platform. We increased EBITDA by over 50%, and we doubled earnings per share and EBIT at both utility and midstream businesses from 2018 to 2022. Even more impressive for this team, in my opinion, is that we were able to achieve these results despite the sale of $7.9 billion of EBITDA-producing assets and the reduction of debt leverage from 11x to 5x with no equity issuances. This was a monumental transformation and is a testament to the enormous intrinsic value of our asset base and the dedication and hard work of our talented employees. I am proud of what we've accomplished together. I'm confident that this management team will continue to drive value for our shareholders, and I'm pleased to transition to the next CEO, a company with solid foundation and a bright future. Thank you. And with that, I will open up the floor for any informal questions as part of the [AGM]. Brad, are there any questions from virtual shareholders?

There are no further questions, Randy. I hope there's a question in the crowd there.

Please step to make and just remember to show your blue card.

It's been about 4 years since your last live meeting. And I presume the Washington Light & Power acquisition has been fully integrated. Could you give me a bit of an idea or give us an idea what percentage of the earnings that represents? How much would be, say, your midstream Western stuff? And how much would be represented in your propane exports?

Sure. Thank you for the question, in the way. And it's actually really nice to be together, isn't it? So thank you so much. James our pilot is here, he's got these numbers down path. But I know in general, when you look at our overall profitability and that is our cash flow EBITDA, we range in around 55% to the utility and about 45% for midstream. But that can vary given the year that midstream could be quite higher a little bit, but that's generally where our cash flows and earnings come at this point. And in the respect you asked about the export revenues, look, we have those, we can -- maybe if we could offline, give you actually the breakdown of all of that. But in terms of what we had in the MD&A James, I don't know if you have any other deep...

Yes, the numbers that you shared on the utilities are spot on, 55-45. Our global exports tend to average about 20% to 22% of our overall EBITDA within the midstream platform.

Yes, Bill Mana Nice to meet you. I was wondering what you might consider the optimum or ideal if I can those words debt-to-EBITDA ratio for a company such as AltaGas.

No, it's a fair question or target. Well, I think that we -- as we've been moving forward and looking, we're -- I don't know if there's an optimal target. But since we've been growing most of the CapEx in the utility business, and we've been growing their rate base accordingly. And I think as you go forward, we'll be investing even more into the midstream business. So I don't know if I have an optimum capital structure, but I think one of the advantages for our business is that we can spend in one business when there's really attractive projects and then maybe allocate capital differently in another year. I think overall, we want to be flexible and be able to earn the highest return and we make sound decisions in terms of how to allocate capital based on risk-adjusted return. So at the end of the day, you have to be able to finance these businesses, and we've been working hard to keep these two businesses such that they are valued consistently so that we can continue to raise equity if we have to raise equity to finance these businesses.

Sure. Obviously, we had targeted a 5x debt-to-EBITDA target when the management team was reconstituted, and Randy touched on that. We've been able to achieve that, and we started to -- with some of the sales of the assets that we've made longer term, we've said 4.5x net debt-to-EBITDA target for ourselves. And we feel that once we get there, we'll have a BBB rating with both rating agencies that cover us. Fitch has already given us a BBB rating, and we're trying to move the S&P rating that we have to BBB from BBB-. So those are some of the near-term and longer-term debt targets that we set for ourselves, and we feel that we've got a plan to achieve the 4.5x net debt-to-EBITDA target that we set for ourselves. That's the path that we're on right now.

Good. Thank you for that. I have another question. SP-13. So I noticed some over the last little period of time at the LPG prices worldwide have taken a significant decline. Does that affect AltaGas financials in any way, the price of the product?

In our export business, the key driver is really our structural advantage. That is our transportation difference between taking clean Canadian energy to Asia. And so to the extent that Asia prices drop, then it has a corresponding drop in North America. And so we feel very confident that what we're trying to do is actually we have the best markets for LPGs for our customers and that we are wanting to have them to have the opportunity to access those markets. And so we'll be basically focusing on the tolling between those 2. And I would tell you on the more macro issue is that in North America, we have more LPGs than we have market. And in Asia, they have more need for LPGs than they have market. And so that's where the product is going. And while the price will fluctuate they'll be increasing shipments to Asia and that disparity between the price locally and where the market is, is what AltaGas has really brought to the table for our customers in Canada.

Right. All of AltaGas' revenues in that business are based on the shipping. In other words, not the ownership of the product.

Well, that's the macro that sort of sets the value of service, but our revenues are based and Randy and his team have done a great job on having to put the commodity risk with those that own the commodity. So we're just trying to connect our customers to the best market and pick up that differential.

So we've reached the end of our question-and-answer session. We encourage you to reach out to us throughout the year with your questions by contacting our Investor Relations department or if your question is related to governance, by contacting the Board in accordance with our Board shareholder engagement policy. I will now turn it back to Randy for final comments.

I think I just wanted to say in just simple words, thank you to everyone. It's been one of the best experiences that I've had in my career. Calgary. And while it's been quite an adventure with all of the things that have happened to all over the last 4 years from a pandemic to recessions. And I often say, I remember when I came oil prices and he went down to almost $10 at a time. And then they reached all the way to record highs. It's been one of the best experiences in my career. So I would just say thank you to everyone that has been involved and I appreciate I'm looking forward to AltaGas' future, I'm very excited. Thank you all.