Keyera Corp. announced its 2024 second quarter financial results, the highlights of which are included in this news release. To view Management's Discussion and Analysis (the "MD&A") and financial statements, visit either Keyera's website or its filings on SEDAR+ at www.sedarplus.ca.
"Disciplined execution of our strategy is resulting in consistent growth of high-quality, fee-for-service cash flow. This allows us to continue to deliver on our long history of sustainable dividend growth," said Dean Setoguchi, President and CEO. "We continue to advance capital efficient growth opportunities, further strengthening our value chain to maximize value for customers and shareholders."
Second Quarter Highlights
Financial Results – Net earnings were $142 million (Q2 2023 – $159 million), adjusted earnings before interest, taxes, depreciation, and amortization1 ("adjusted EBITDA") were $326 million (Q2 2023 – $293 million), and distributable cash flow1 ("DCF") was $202 million (Q2 2023 – $207 million). These results include higher year-over-year contribution from all three business segments.
Sustainable Dividend Growth – Keyera has increased its dividend by 4%, which is supported by the continued growth of Keyera's fee-for-service business and a conservative payout ratio1 of 55% of DCF (twelve-months trailing).
Strong Growth in High-Quality Cash Flow – Second quarter fee-for-service realized margin1 increased by 15% compared to the same period last year.
The Gathering & Processing ("G&P") segment delivered realized margin1 of $102 million (Q2 2023 – $84 million). The year-over-year increase is in part due to the impact of wildfires in Q2 2023 and is also supported by record quarterly volumes in the North region gas plants.
The Liquids Infrastructure segment delivered realized margin1 of $133 million (Q2 2023 – $119 million). The increase is attributable to higher contributions from KAPS as contracted volumes continue to ramp up, and strong demand for Keyera's fractionation, storage, and condensate services.
Solid Marketing Results – The Marketing Segment delivered realized margin1 of $136 million (Q2 2023 – $134 million), including the impact of a 6-week planned outage at AEF. This performance was driven by the continued strength of the iso-octane business and higher contributions from propane, butane and the condensate value chain.
Strong Financial Position – The company ended the quarter with net debt to adjusted EBITDA2 at 2.0 times, below the targeted range of 2.5 to 3.0 times. The company is well positioned to pursue and equity self-fund opportunities that will enhance shareholder value.
Progressing Toward Emissions Reduction Target – The company has achieved a 21% emissions intensity reduction over the 2019 to 2023 timeframe and remains well positioned to meet its near-term target of a 25% reduction by 2025. Keyera's 2023 Sustainability & Climate Report is now available at www.keyera.com.
2024 Guidance Update
The Marketing realized margin1 for 2024 is now expected to range between $450 million and $480 million (previous guidance of $430 million to $470 million). The increase takes into account strong year-to-date realized margin1 (1H 2024 – $250 million) and assumes the AEF facility operates at capacity for the remainder of the year, there are no significant logistics or transportation curtailments and current forward commodity pricing for unhedged volumes for the remainder of the year.
Reaffirming growth capital expenditures are expected to range between $80 million and $100 million. This includes $20 million to $40 million of capital that is contingent on sanctioning of KAPS Zone 4 and fractionation capacity expansion opportunities at KFS.
Maintenance capital expenditures are now expected to range between $120 million and $140 million (previously $90 million and $110 million). This is mostly attributable to increased costs for turnaround activities which are largely recoverable in future years.
Cash tax expense is now expected to range between $90 million to $100 million (previously $85 million to $95 million). This new range reflects the increase in expected earnings contribution from the Marketing segment.
CEO's Message to Shareholders
Strategically positioned to enable basin growth. Over the past several years, our company has strategically invested to create a fully-integrated natural gas liquids value chain, offering customers a full range of services to add value to the products they produce. We've established a strong G&P footprint in the rapidly growing Montney and Duvernay and connected these assets to our core Liquids Infrastructure business with the KAPS pipeline. From 2018 to 2023, realized margin from our fee-for-service businesses grew by 50%, largely due to these investments. Production from the Western Canada Sedimentary Basin continues to grow and set new records for both natural gas and natural gas liquids. Continued growth will be driven by the Trans Mountain Pipeline Expansion, LNG Canada, increasing West Coast LPG exports and a growing petrochemical industry. Keyera remains well positioned to benefit from enabling this growth by leveraging our integrated platform, which will allow Keyera to continue to compound returns and create long-term value for shareholders.
Sustainable dividend growth. At its core, Keyera is a dividend growth company. Since our IPO in 2003, we have returned $4.7 billion to investors. Yesterday, we were pleased to announce another dividend increase of 4% to $2.08 per share annually. This dividend increase is supported by the continued growth of Keyera's fee-for-service business and a conservative payout ratio.
High-quality, fee-for-service cashflows are increasing. We remain on track to reach the upper end of our compound annual growth rate (CAGR) target for adjusted EBITDA (holding Marketing constant) of 6-7% from 2022 to 2025. Continued growth in the G&P segment will come largely from filling available capacity in our North region gas plants which serve the prolific Montney and Duvernay fairway. These formations have a higher condensate content, which strengthens customer economics and makes them less sensitive to natural gas pricing. Today, more than 70% of our G&P realized margins come from our North region gas plants. Our Liquids Infrastructure segment is positioned for further growth supported by the continued ramp-up of long-term contracted volumes on KAPS, growing demand for our storage and condensate businesses, and potential new capital-efficient growth projects including fractionation capacity expansions and KAPS Zone 4.
Marketing segment is a valuable differentiator. Today, we increased our 2024 Marketing realized margin guidance due to strong year-to-date performance and supportive market fundamentals. This physical business leverages our integrated assets and logistics expertise to deliver products throughout North America. The Marketing segment has enabled us to consistently produce higher than average corporate Returns on Invested Capital (ROIC) relative to our peers. The cash flow generated from this segment is reinvested in our fee-for-service business, accelerating growth in high-quality, long-term contracted cash flows.
Strong free cash flow outlook. 2024 will be a year of strong free cash flow generation as the company has entered a phase of lower capital spending. With a strong balance sheet and having just increased our dividend, we will continue to balance disciplined capital investments with further increasing shareholder returns to maximize shareholder value.
Continued long-term value creation. As an essential infrastructure service provider, Keyera will continue to play an integral role in enabling basin volume growth while staying financially disciplined to create long-term value for our stakeholders.
On behalf of Keyera, I want to thank our employees, customers, shareholders, Indigenous rights holders, and other stakeholders for their continued support.
Notes:
1 Keyera uses certain non-Generally Accepted Accounting Principles ("GAAP") and other financial measures such as EBITDA, adjusted EBITDA, funds from operations, distributable cash flow, distributable cash flow per share, payout ratio, realized margin and compound annual growth rate ("CAGR") for adjusted EBITDA holding Marketing constant. Since these measures are not standard measures under GAAP, they may not be comparable to similar measures reported by other entities. For additional information, and where applicable, for a reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP measure, refer to the section of this news release titled "Non-GAAP and Other Financial Measures". For the assumptions associated with the 2024 realized margin guidance for the Marketing segment, refer to the section titled "Segmented Results of Operations: Marketing – Market Commentary" of Management's Discussion and Analysis for the period ended June 30, 2024.
2 Ratio is calculated in accordance with the covenant test calculations related to the company's credit facility and senior note agreements and excludes hybrid notes.
3 Includes gas volumes and the conversion of liquids volumes handled through the processing facilities to a gas volume equivalent. Net processing throughput refers to Keyera's share of raw gas processed at its processing facilities.
4 Fractionation throughput in the Liquids Infrastructure segment is the aggregation of volumes processed through the fractionators and the de-ethanizers at the Keyera and Dow Fort Saskatchewan facilities.
5 Long-term debt includes the total value of Keyera's hybrid notes which receive 50% equity treatment by Keyera's rating agencies. The hybrid notes are also excluded from Keyera's covenant test calculations related to the company's credit facility and senior note agreements.
Second Quarter 2024 Results Conference Call and Webcast
Keyera will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the financial results for the second quarter of 2024 at 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) on Thursday, August 8, 2024. Callers may participate by dialing 888-664-6392 or 416-764-8659. A recording of the conference call will be available for replay until 10:00 PM Mountain Time on August 21, 2024 (12:00 AM Eastern Time on August 22, 2024), by dialing 888-390-0541 or 416-764-8677 and entering passcode 336068.
To join the conference call without operator assistance, you may register and enter your phone number here to receive an instant automated call back. This link will be active on Thursday, August 8, 2024, at 7:00 AM Mountain Time (9:00 AM Eastern Time).
A live webcast of the conference call can be accessed here or through Keyera's website at http://www.keyera.com/news/events. Shortly after the call, an audio archive will be posted on the website for 90 days.
