Q3 2021 Teekay Corp Earnings Call
Good day and welcome to Teekay Corporation's third quarter 2021 earnings results Conference call.
During the call all participants will be in a listen only mode.
As a reminder, this call is being recorded.
Now for opening remarks, and introductions I would like to turn the call over to the company. Please go ahead.
Before we begin I would like to direct all participants to our website at www Dot Teekay dot com, where you'll find a copy of the third quarter of 2021 earnings presentation.
Today's president and CEO Kenneth bid in Teekay CFO, Vince Lok will review this presentation. During today's conference call. Please allow me to remind you that our discussion today contains forward looking statements actual results may differ materially from results projected by those forward looking statements additional information concerning factors that could cause actual results to materially differ from there.
Those in the forward looking statements is contained in the third quarter of 2021 earnings release and presentation are available on our website.
Please note that due to the pending merger between Teekay LNG and stone peaks, we are strictly limited in our ability to comment on the planned transaction and therefore, we will not be holding a Q&A session. After the call today.
For additional information about the merger please see Teekay Lng's Rockies proxy statement filed with the SEC on University in November 2nd relating to the pending merger with that I'll now turn the call over to Vince to begin.
Thanks, Brian Good morning, everyone and thank you for joining us today for Teekay Corporation's third quarter 2021 earnings Conference call.
Before I hand, the call over to Kenneth I will briefly review our financial results for the quarter.
Starting with our recent highlights on slide three of the presentation.
In the third quarter, we reported a consolidated adjusted profit of 95000 up slightly from 30000 in the prior quarter.
We also generated total adjusted EBITDA of $165 million down from $172 million in the previous quarter.
Stronger results from our Marine services business in Australia, and lower vessel operating expenses offset weaker tanker rates and a heavy drydock schedule in our tanker business during the quarter.
While our gas business performed as expected.
Looking ahead and viewing the Teekay consolidated entity in its current configuration, we are expecting our fourth quarter results to be better than the third quarter, mainly due to improving spot tanker rates and fewer drydocking days for both our gas and tanker fleets, partially offset by higher vessel operating expenses mainly.
Due to timing of repairs and maintenance.
On our fourth quarter results. Please refer to the appendix of this presentation.
As announced on October 4th GGP, and <unk> entered into a merger agreement whereby <unk> will acquire all the issued and outstanding common units and general partner units for $17 per unit in cash representing an enterprise value of $6 2 billion in common unit equity value of one point.
$5 billion.
Teekay parent will be selling its entire position in P GP, including our GP interest for gross proceeds of approximately $640 million.
In addition, as part of the transaction Teekay will transfer the ownership of various management services companies that currently deliver the operations for T GP and certain of its joint ventures, along with various personnel, while maintaining the required industry leading capabilities for the remaining teekay groups.
Did your keys preferred units will remain outstanding after the merger.
On October 27th CGP held a bondholder meeting to approve certain amendments required to complete the merger and we are pleased to report that TEP received sufficient bondholder consent for both of its outstanding and Norwegian bonds, which mature in 2023 and 2025.
The merger remains subject to certain other closing conditions, including approval by the holders of the majority of <unk> outstanding common units.
Our special meeting of common unitholders to vote on the transaction is scheduled for December 1st and the transaction is targeted to close on or soon after December 31 2021.
Dennis will discuss this transaction in more detail later in the presentation.
Lastly in September Teekay parent's secured a contract with the Australian governments Department of defense to provide marine services for five Australian government vessels.
Or for a period of six years with options to extend for up to an additional 10 years.
Teekay has had a presence in Australia since 1997, and we are proud to be a partner with a strategic customer.
I'll now provide services for nine Australian government vessels, which provides a solid foundation to further grow this business.
With that I will now turn the call over to Kenneth.
Thanks, Vince and good.
Good morning, everyone.
Turning to slide four I'll comment on Ggp's pending merger was don't peak and the key transaction highlights.
Since Tep's IPO 16 years ago, we have bill GDP into the worlds third largest independent LNG carrier owner and operator with one of the largest and most diversified portfolios of long term contracts with leading players in the LNG industry, we leveraged sheetcase operating franchise on.
Brand and reputation in the shipping industry to grow our market share considerably over the last 16 years to the point, where GDP is now only behind two Japanese LNG shipping companies in terms of size.
GDP hasn't ordered a new vessel since 2014 and to modernize and potentially grow its fleet in an accretive manner. GGP is now at the stage, where it requires a significant amount of competitively priced capital for both fleet renewal and potential for future growth.
<unk> capital has not been available to the LNG shipping and MLP sectors on competitive terms through public acreage of August for a number of years. We believe this is reflected in many of the private citations that have taken place in recent times, including a number of Ggp's peers.
In this context and as Vince mentioned earlier <unk> has agreed to pay $17 per unit or unit equivalent in cash plus the quarterly distribution of approximately <unk> 29 cents per unit, which will be paid on November 12 to unitholders on record on November 5th.
Including this quarterly distribution the price paid equates to a 10, 2% premium to Ggp's closing price on October 1st and 19, 5% premium. So the 180 day volume weighted average price on a year to date basis. This represents a total unitholder return Oh.
60%.
We believe this transaction represents a unique opportunity for us and all the GDP common unitholders to monetize our existing investments in GGP and an attractive valuation, which was achieved through a broad competitive process.
Acting on the recommendation from Ggp's conflicts committee comprised solely of independent Board members. The Gd Port GGP Board of directors unanimously approved the transaction and recommend that all unit holders vote in favor of the merger with both the GGP conflicts Committee and the GGP Board of directors, having received fairness opinion.
From their respective financial advisors.
The GGP Corporation Board of Directors also unanimously approved the transaction and we have signed a voting and support agreement with stone P. So vote, our 41% common unit position and GDP in favor of the merger.
This transaction also allows both teekay and GP common unit holders to realize an attractive return with teekay, earning a total shareholder return of 203% and an annual IRR of 12, 5% since Tep's IPO in 2005.
Lastly, this transaction transforms teekay <unk> balance sheet and gives us the financial flexibility and dry powder to pursue future opportunities, which I will touch on in more detail later in this presentation.
For more information about the transaction I would direct you to the proxy statement, which is available on <unk> website.
Turning to slide five we provide our some of the pops value at the end of 2020, which was when we decided to formally launch a potential sale process relating to our stake in GDP compared to the current sum of the parts value pro forma for the pending Ggp's don't pay transaction.
Since the beginning of the year I'll start with deposit value has increased from $208 million or $2.06 per share to $464 million or $4 57 per share post merger, which is an increase of $256 million or $2 51 per share Richardson.
Ending at 122% increase.
The increase was mainly due to the pending Ggp's don't peak merger, which post transaction and after giving effect to all anticipated use of merger proceeds to repay debt will result in teekay parent being completely debt free with a cash position of about $325 million the 122% increase.
Also reflects the elimination of our 33 million dollar asset retirement obligation or a oh associated with the bands if peso and its field in the second quarter and Tnk's year to date stock appreciation.
And we continue to have a positive outlook fall tanker business with attractive supply and demand fundamentals going forward, which tnk's president and CEO, Kevin Mackay will discuss in more detail during Tnk's earnings conference call. Following this call.
Based on the solid Pos post merger, we are currently trading at an 18% discount as of Yesterdays closing share price of $3.74 per share.
Turning to slide six teekay.
<unk> was founded nearly 50 years ago by our late founder told them call side.
Over this time, we have built a strong brand and reputation in the shipping sector with a focus on operational excellence and we have a track record for growing and scaling businesses customer relationships and partnerships along with various although capabilities.
Upon completion of the pending merger and subsequent debt prepayment, we will have significantly greater financial flexibility with approximately $325 million in estimated cash balances. This puts us in a position, where we again can leverage our operating franchise and industry leading capabilities to pursue.
Attractive investment opportunities to create long term shareholder value.
As we survey the landscape, we could potentially pursue such opportunities alongside our daughter company TNK directly at the Teekay Corporation level, all through partnering with others on a public or private basis as we've done in the past.
As part of being successful in shipping we truly believe that it is important to buy assets at the right time and in order to do that we need to have a strong balance sheet and prompt access to capital in order to take advantage of attractive investment opportunities and at Times Act counter cyclically.
<unk> future investment opportunities maybe in the shipping sector, we already have a meaningful position in tankers through our controlling interest in TNK with tanker supply and demand fundamentals continue to trend in a positive direction based on our operational capabilities. We could also potentially invest in other shipping sectors, some of which we have had <unk>.
<unk> was in the past and we also have a long history of expanding into new shipping sectors, bringing substantial value to an existing platform for teekay as financial strength long standing industry relationships and core competency of scaling and optimizing businesses.
We also recognize that the world is changing and while we believe that oil will remain an important component of the worlds energy mix for many decades. We also see that the increasing focus on greater energy diversification and low emissions will bring all will bring other interesting opportunities as well.
Teekay has unique capabilities and profile could be a meaningful competitive advantage.
It could include new vessel technologies as the shipping sack, so pushes to decarbonize over time, where we have a track record of embracing new technologies. For instance, we were the first to water LNG fueled shuttle tankers and the making LNG carriers just as we did when we first entered the LNG business almost 20 years ago, we expect to maintain.
An active role in meeting our customers' involved evolving needs through the energy transition.
It may take time for these opportunities to fully come to fruition, but we believe that we have the necessary capabilities to play an important role in this exciting and highly dynamic environment.
Within existing operational franchise industry, leading capabilities and greater financial flexibility. Following completion of the pending GP transaction. We believe that we will be well positioned to take advantage of future opportunities to create long term shareholder value with that I want to thank everyone.
For listening and for your continued interest in Teekay, we certainly appreciate it and we look forward to speaking to you next quarter.
This concludes today's call. Thank you for your participation you may now disconnect.
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Sure.
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This is the conference operator again, thank you for joining however, this call's concluded you may now disconnect.