AltaGas Announces Strong First Quarter Results and Increases 2021 Guidance

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AltaGas Announces Strong First Quarter Results and Increases 2021 Guidance

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by ahnationtalk on April 29, 202169 Views


The Company Continues to Execute on its Strategic Plan; Delivers Robust First Quarter; and Increases 2021 Financial Guidance Ranges.

CALGARY, AB, April 29, 2021  – AltaGas Ltd. (“AltaGas” or the “Company”) (TSX: ALA) today reported first quarter 2021 financial results and provided an update on the Company’s operations and outlook.

HIGHLIGHTS

(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

  • Normalized EPS1 of $1.29 in Q1 2021 compared to $0.79 in Q1 2020, representing a 63% year-over-year increase.
  • Normalized FFO1 per share of $2.08 in Q1 2021 compared to $1.51 in Q1 2020, representing a 38% year-over-year increase.
  • Normalized EBITDA1 of $674 million in Q1 2021 compared to $499 million in Q1 2020, representing a 35% year-over-year increase and reflected solid performance across the platform.
  • On April 23, 2021, AltaGas monetized its non-core U.S. Transportation and Storage business for cash proceeds of approximately $344 million (US$275 million). The transaction is expected to deliver approximately $485 million of debt repayment. AltaGas’ estimates its leverage ratio should decrease by up to 0.5x over 2021 relative to the 2020 run-rate level and move the Company closer to being below 5.0x Net Debt to normalized EBITDA1.
  • The Midstream segment reported record normalized EBITDA of $304 million in Q1 2021 compared to $120 million in Q1 2020, representing a 153% year-over-year increase.
  • Within the Midstream segment, Global Exports shipped eight vessels from RIPET and six vessels from Ferndale, averaging approximately 85,000 Bbls/d of combined LPGs to Asia in the quarter.
  • The Utilities segment reported normalized EBITDA of $371 million in Q1 2021, representing a $2 million year-over-year increase. Adjusting for one-time and foreign exchange impacts, normalized EBITDA from the Utilities segment increased approximately 11% year-over-year.
  • On April 9, 2021, the Maryland rate case was approved with a US$13.1 million revenue increase, an approved ROE of 9.7% and 52% equity thickness.
  • Given the robust performance year-to-date, AltaGas is increasing its 2021 guidance ranges to: 1) normalized EPS of $1.65$1.80 (previously $1.45$1.55); and 2) normalized EBITDA of $1.475 billion$1.525 billion (previously $1.4 billion$1.5 billion).

1.

Non-GAAP measure; see discussion in the advisories of this news release and reconciliation to US GAAP financial measures shown in AltaGas’ Management’s Discussion and Analysis (MD&A) as at and for the period ended March 31, 2021, which is available on www.sedar.com.

CEO MESSAGE

“AltaGas delivered robust first-quarter results and remains well-positioned to deliver on the Company’s strong growth prospects in 2021 and beyond,” said Randall Crawford, President and Chief Executive Officer. “We executed across all segments of our business in the quarter. Our Midstream platform, including Global Exports, achieved record throughput and profits, our Utilities segment continued to drive improved customer outcomes while controlling costs and improving returns, our Finance team further reduced our debt costs while extending maturities and we are well-positioned to continue to reduce our leverage ratios over the balance of the year. As a result of these factors, we grew normalized EPS by 63% year-over-year in the first quarter. Excluding the larger-than-expected profits from the U.S. Transportation and Storage business in the quarter, run-rate normalized EPS increased 35% year-over-year and aligns with our focus on delivering durable and growing EPS and FFO per share, which supports steady dividend growth and provides the opportunity for ongoing capital appreciation.

“Within our Utilities segment, we continue to focus on delivering better customer outcomes. This includes making ongoing investments that improve safety and reliability, reduce leaks and drive better environmental outcomes, while also growing rate base. As a result of these efforts and capital investments, we continue to show steady progress in reducing our operating costs. When coupled with the tailwinds associated with the implementation of updated rates and increased revenues in the District of Columbia (US$19.5 million revenue increase) beginning April 1, 2021 and Maryland (US$13.1 million revenue increase) beginning March 26, 2021, we believe we are well-positioned to show strong improvements in forward operating performance and be in a position to earn our allowed returns by 2021 year-end.

“Our Global Exports business, which is part of our Midstream operations, had a strong quarter with 14 Very Large Gas Carriers shipped to Asia, demonstrating the value creation of the well-timed acquisition of Petrogas. We are making marked progress on integration and transferring commercial knowledge between the combined workforce, which is now operating as one team. The Midstream segment was bolstered by another strong quarter of LPG shipments to Asia that averaged approximately 85,000 Bbls/d and achieved normalized EBITDA of $224 million in Q1 2021, excluding the larger-than-expected U.S. Transportation and Storage performance. This represented an 87% year-over-year increase with the segment clearly benefitting from embracing the best practices of AltaGas and Petrogas and delivering operational excellence that is enhancing profitability across the combined organization. Based on the execution levels achieved this quarter, the Company remains confident of capturing longer-term upside potential in 2022 and beyond.

“After the strong start to the year, we have increased our 2021 financial guidance ranges as our confidence in our forward strategy and our long-term growth prospects is very strong. The new midpoint of our normalized EPS guidance range represents 22% year-over-year growth and reflects the strong sequential compounding increases we have delivered over the past two years. We believe our continued ability to deliver growing EPS and FFO per share will drive an increased enterprise value, improve our leverage metrics, and create compounding value for our stakeholders.”

BUSINESS PERFORMANCE

Utilities

During the first quarter the Utilities results were reflective of strong operating performance across the platform, offset by the unfavorable move in the USD/CAD exchange rate. The latter of which drove an approximate $21 million year-over-year headwind to normalized EBITDA in Canadian dollar terms. Excluding one-time items, including the absence of $8 million in normalized EBITDA contribution from AltaGas Canada Inc. and an $8 million rate refund related to the Virginia Hearing Examiner’s report in Q1 2020, Utilities normalized EBITDA was up by 11% year-over-year in U.S. dollar terms. The strong growth was underpinned by investments focused on better customer outcomes, improved performance in the Retail segment, and aligns with AltaGas’ strong forecasted growth rates through 2025. This growth is heavily underpinned through utilizing accelerated replacement programs (ARPs), which are focused on improving the safety and reliability of the network, reducing leak rates and driving better environmental outcomes; all of which drive strong benefits to  AltaGas’ customers while growing rate base.

The Company also continues to make progress on closing the ROE gap at WGL through ongoing regulatory, capital and cost discipline. On April 9, 2021 the Maryland Commission approved a base rate increase of US$13.1 million, effective March 26, 2021. This rate case, along with the previously announced D.C. rate case, ensures AltaGas’ rates remain up to date and accurately reflect current operating costs. The Utilities segment also benefited from strong performance in WGL’s Retail Energy Marketing business driven by higher demand, favorable pricing and margins, and reduced COVID-related impacts.

Midstream

The Midstream segment reported record normalized EBITDA of $304 million in Q1 2021, which was up 153% year-over-year. In addition to the larger-than-expected profits from the U.S. Transportation and Storage business, all other businesses delivered robust year-over-year growth and strong execution, including Global Exports, Fractionation & Liquids Handling, and Gas Processing. Excluding the stronger-than-expected profitability from the U.S. Transportation and Storage business, Midstream EBITDA was still up by 87% year-over-year, including the consolidation of Petrogas.

Global Exports contributed $70 million in normalized EBITDA during the quarter, driven by approximately 85,000 Bbls/d of LPGs being shipped to Asia. This included RIPET exporting a record of approximately 50,700 Bbls/d of propane across eight ships and Ferndale exporting approximately 34,750 Bbls/d of combined propane and butane across six vessels. Record export volumes were underpinned by strong operations and efficiencies across the two terminals, ongoing growth in throughput volumes in AltaGas’ Northeastern B.C. gas processing and fractionation facilities and continued robust demand for North American LPGs within Asia. As highlighted in the past, our ability to deliver lower carbon emitting fuels to Asia, like propane and butane, on our fully utilized LPG export capacity has the potential to eliminate the equivalent of approximately 500,000 average Asian citizens’ total carbon footprints per year when compared to using more carbon-intensive fuels, like thermal coal. As AltaGas’ exports rise, so can the positive environmental benefits provided globally.

Processing and fractionation volumes were up across the Canadian Midstream platform with total inlet volumes up 10% year-over-year. Producers in the Montney continue to execute on active drilling programs and ramp up production, driving increased throughput at the Company’s recently expanded Townsend and North Pine facilities. Processing and fractionation volumes at AltaGas’ non-Montney footprint also increased during the quarter, driven by higher production volumes on strengthening fundamentals and improved commodity prices.

AltaGas’ U.S. Transportation and Storage business generated $80 million stronger contributions in Q1 2021 normalized EBITDA than was forecasted, as the Company benefited from supply dislocations and market volatility in U.S. natural gas prices to deliver robust profits in the quarter. As highlighted on April 23, 2021, AltaGas monetized the Company’s U.S. Transportation and Storage business subsequent to quarter-end. Total cash proceeds on the sale were approximately $344 million (US$275 million). When combined with the strong profitability from the business in Q1 2021 and reduction in associated working capital requirements, the monetization is expected to drive approximately $485 million of debt repayment. This will materially accelerate AltaGas towards achieving its long-term target of being at or below 5.0x Net Debt to normalized EBITDA.

The average indicative spot NGL frac spread for Q1 2021 was approximately $24/Bbl, however due to our hedging program AltaGas’ realized frac spread averaged approximately $15/Bbl in the first quarter of 2021 (including transportation costs of approximately $11/Bbl), as 95% of volumes were hedged at approximately $26/Bbl. AltaGas remains well hedged through the balance of 2021. Approximately 60% of Global Exports 2021 expected export volumes are collectively hedged, including long-term tolling arrangements and the balance through FEI to North American financial hedges that average approximately US$11/Bbl, including both propane and butane.

2021 Midstream Hedge Program

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Global Exports volume hedged (%)(1)

65

64

55

46

Average propane/butane FEI to North America Average hedge (US$/Bbl)(2)

10.41

10.40

11.97

11.53

Fractionation volume hedged (%)

95

89

93

86

Frac spread hedge rate – (CAD$/Bbl)(3)

26.07

24.27

24.27

24.27

(1)  Approximate expected volume hedged, includes contracted tolling volumes and financial hedges; based on the assumption of average exports of 90 MBbl/d.

(2)  Approximate average for the period; does not include physical differential to FSK for C3 volumes.

(3)  Approximate average for the period.

Q1 2021 FINANCIAL RESULTS

Three Months Ended
March 31

($ millions)

2021

2020

Segmented Normalized EBITDA(1)

Utilities

371

369

Midstream

304

120

Sub-total: Operating Segments

$

675

$

489

Corporate/Other

(1)

10

Normalized EBITDA (1)

$

674

$

499

Add (deduct):

Depreciation and amortization

(99)

(105)

Interest expense

(70)

(70)

Normalized income tax expense

(107)

(82)

Preferred share dividends

(13)

(17)

Other (3)

(24)

(5)

Normalized net income (1)

$

361

$

220

Net income applicable to common shares

$

337

$

464

($ per share, except shares outstanding) 

2021

2020

Shares outstanding – basic (millions)

During the period (2)

280

279

End of period

280

279

Normalized net income – basic (1)

1.29

0.79

Normalized net income – diluted (1)

1.29

0.79

Net income per common share – basic

1.21

1.66

Net income per common share – diluted

1.20

1.66

(1)

Non–GAAP financial measure; see discussion in Non–GAAP Financial Measures section at the end of this news release.

(2)

Weighted average.

(3)

“Other” includes accretion expense, net income applicable to non-controlling interests and foreign exchange gains (losses).

Normalized EBITDA for the first quarter of 2021 was $674 million, which represented a 35% year-over-year increase compared to $499 million for the same quarter in 2020. This included significantly stronger year-over-year performance from the Midstream segment due to: 1) larger-than-expected profitability from the U.S. Transportation and Storage business; and 2) robust performance across the Midstream platform, including a full quarter of consolidation of Petrogas. The Utilities segment also demonstrated strong operating performance, however this growth was largely offset by: 1) an unfavorable move in the USD/CAD exchange rate; 2) the lack of contribution to normalized EBITDA from AltaGas Canada Inc., which had contributed $8 million in Q1 2020; and 3) the headwind of an $8 million refund related to the Virginia Hearing Examiner’s report that boosted Q1 2020 results.

The Corporate/Other segment reported normalized EBITDA loss of $1 million. The $11 million year-over-year decrease was mainly due to: 1) higher expenses related to employee incentive plans due to AltaGas’ rising share price in 2021; and 2) the impact of the Pomona asset sale in July 2020.

Normalized net income was $361 million or $1.29 per share for Q1 2021, compared to normalized net income of $220 million or $0.79 per share reported in Q1 2020. The increase in normalized net income was due to the same previously referenced factors impacting normalized EBITDA, lower depreciation and amortization expense, and lower income tax expense, partially offset by higher net income applicable to non-controlling interest as a result of the consolidation of Petrogas.

Net income applicable to common shares for Q1 2021 was $337 million or $1.21 per share, compared to net income of $464 million or $1.66 per share for Q1 2020. In addition to the factors impacting normalized EBITDA, the decrease was mainly due to the absence of: 1) the gain on the sale of AltaGas Canada Inc.; 2) the gain related to certain U.S. distributed generation assets, which were transferred to the purchaser in Q1 2020; and 3) provisions related to the sale of the majority of WGL Midstream’s commodity business and lower unrealized gains on risk management contracts. This was partially offset by the same previously mentioned factors impacting normalized EBITDA, the absence of the dilution loss on equity investments, lower depreciation and amortization expense, and lower income tax expense.

Depreciation and amortization expense for the first quarter of 2021 was $99 million, compared to $105 million for the same quarter in 2020. The decrease was mainly due to lower U.S. Midstream amortization and the amortization of purchase price allocation adjustments related to the Petrogas acquisition, partially offset by new assets placed in-service and amortization expense on Petrogas assets upon consolidation.

Interest expense for Q1 2021 was $70 million, unchanged from Q1 2020. Interest expense was impacted by higher average debt balances and lower capitalized interest, offset by lower average interest rates.

AltaGas recorded an income tax expense of $102 million for Q1 2021 compared to an expense of $132 million in Q1 2020. The decrease in income tax expense was mainly due to a decrease in earnings before income taxes and the absence of tax expense related to dispositions in Canada in Q1 2020. Current tax expense of $30 million was recorded in Q1 2021, which did not include any tax on asset sales.

GUIDANCE AND FUNDING

Given the outsized performance year-to-date, AltaGas has increased the Company’s 2021 guidance ranges from those provided in December.

The Company’s new 2021 normalized EPS guidance is $1.65$1.80 per share, compared to the previous range of $1.45$1.55, which represents approximately 22% year-over-year growth using the mid-point of guidance. AltaGas is acutely focused on growing EPS and creating earnings durability in the years ahead.

The Company’s new 2021 Normalized EBITDA guidance is $1.475 billion$1.525 billion, compared to the previous range of $1.40 billion$1.50 billion, which represents approximately 15% year-over-year growth using the mid-point of guidance.

The new guidance ranges reflect the confluence of tailwinds and headwinds that have unfolded since the initial guidance was set in December and is in line with AltaGas’ practice to monitor performance throughout the year and revise guidance when the Company has a strong degree of confidence that it will land outside of the previous stated ranges.

AltaGas’ 2021 capital expenditure plan remains unchanged at approximately $910 million, excluding ARO. This 2021 spending plan is heavily weighted towards the lower-risk Utilities business and is comprised primarily of ARP and system betterment projects that are focused on delivering better customer outcomes, improving safety and reliability, reducing leaks and driving better environmental outcomes, while also delivering stable and transparent rate base growth and appropriate risk-adjusted returns. The Company is allocating approximately 38% of AltaGas’ consolidated 2021 capital to ARPs in its Utilities business, representing approximately 46% of the total 2021 Utilities capital program.

MONTHLY COMMON SHARE DIVIDEND AND QUARTERLY PREFERRED SHARE DIVIDENDS

The Board of Directors approved the following schedule of Dividends:

Type

Dividend

(per share)

Period

Payment Date

Record

Ex-Dividend

Common Shares1

$0.08330

n.a.

15-Jun-21

25-May-21

21-May-21

Series A 

Preferred Shares

$0.191250

31-Mar-21 to

29-Jun-21

30-Jun-21

16-Jun-21

15-Jun-21

Series B

Preferred Shares

$0.170360

31-Mar-21 to

29-Jun-21

30-Jun-21

16-Jun-21

15-Jun-21

Series C 

Preferred Shares

US$0.330625

31-Mar-21 to

29-Jun-21

30-Jun-21

16-Jun-21

15-Jun-21

Series E

Preferred Shares

$0.337063

31-Mar-21 to

29-Jun-21

30-Jun-21

16-Jun-21

15-Jun-21

Series G

Preferred Shares

$0.265125

31-Mar-21 to

29-Jun-21

30-Jun-21

16-Jun-21

15-Jun-21

Series H 

Preferred Shares

$0.195295

31-Mar-21 to

29-Jun-21

30-Jun-21

16-Jun-21

15-Jun-21

Series K 

Preferred Shares

$0.312500

31-Mar-21 to

29-Jun-21

30-Jun-21

16-Jun-21

15-Jun-21

(1)         Eligible dividend for Canadian income tax purposes

CONSOLIDATED FINANCIAL REVIEW

Three Months Ended
March 31

($ millions, except normalized effective income tax rate)

2021

2020

Revenue

3,085

1,869

Normalized EBITDA (1)

674

499

Net income applicable to common shares

337

464

Normalized net income (1)

361

220

Total assets

21,071

21,133

Total long-term liabilities

11,132

10,003

Net additions of property, plant and equipment

139

199

Dividends declared (2)

71

67

Cash from operations

605

475

Normalized funds from operations (1)

583

420

Normalized adjusted funds from operations (1)

555

382

Normalized utility adjusted funds from operations (1)

480

308

Normalized effective income tax rate (%) (1)

21.3

25.3

Three Months Ended
March 31

($ per share, except shares outstanding) 

2021

2020

Net income per common share – basic

1.21

1.66

Net income per common share – diluted

1.20

1.66

Normalized net income – basic (1)

1.29

0.79

Normalized net income – diluted (1)

1.29

0.79

Dividends declared (2)

0.25

0.24

Cash from operations

2.16

1.70

Normalized funds from operations (1)

2.08

1.51

Normalized adjusted funds from operations (1)

1.98

1.37

Normalized utility adjusted funds from operations (1)

1.71

1.10

Shares outstanding – basic (millions)

During the period (3)

280

279

End of period

280

279

(1)

Non–GAAP financial measure; see discussion in Non-GAAP Financial Measures section of this MD&A.

(2)

Dividends declared per common share per month: $0.08 beginning on December 27, 2018, increased to $0.0833 per share beginning December 2020.

(3)

Weighted average.

CONFERENCE CALL AND WEBCAST DETAILS

AltaGas will hold a conference call today, April 29, at 8:00 a.m. MT (10:00 a.m. ET and 14:00 GMT) to discuss 2021 first quarter results and other corporate developments.

Members of the investment community and other interested parties may dial 1-647-427-7450 or toll-free at 1-888-231-8191. Please note that the conference call will also be webcast. To listen, please go to http://www.altagas.ca/invest/events-and-presentations. The webcast will be archived for one year.

Shortly after the conclusion of the first quarter call, a replay will be available commencing at 10:00 a.m. MT (12:00 p.m. ET) on April 29, 2021 by dialing 403-451-9481 or toll free 1-855-859-2056. The passcode is 5460459. The replay will expire at 9:59 p.m. MT (11:59 p.m. ET) on May 6, 2021.

AltaGas’ unaudited condensed interim Consolidated Financial Statements and accompanying notes for the first quarter ended March 31, 2021, as well as its related Management’s Discussion and Analysis, are now available online at www.altagas.ca. All documents will be filed with the Canadian securities regulatory authorities and will be posted under AltaGas’ SEDAR profile at www.sedar.com.

ABOUT ALTAGAS

AltaGas is a leading North American energy infrastructure company that connects NGLs and natural gas to domestic and global markets. The Company operates a diversified, low-risk, high-growth Utilities and Midstream business that is focused on delivering resilient and durable value for its stakeholders.

For more information visit www.altagas.ca or reach out to one of the following:

Jon Morrison
Senior Vice President, Investor Relations & Corporate Development
[email protected]

Adam McKnight
Director, Investor Relations
[email protected]

Media Inquiries
1-403-206-2841
[email protected]

NT4

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