Q3 2020 Macquarie Infrastructure Corp Earnings Call
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Now I'd like to hand, the conference over to your Speaker today Mr. Jay Davis. Thank you. Please go ahead Sir.
Thank you and welcome to Macquarie infrastructure corporations earnings Conference call. This covering the third quarter up 2020.
Our poll today is being webcast and is open to the media. In addition to discussing our financial performance on this call. We have published a press release summarizing the results and filed a financial report on form 10-Q, with the Securities and Exchange Commission.
These materials were released this morning and copies may be downloaded from our website at www Dot Macquarie Dot Com Flash am I see.
Before turning the proceedings over to Macquarie infrastructure corporations, Chief Executive Officer, Christopher Frost, Let me remind you that this presentation is proprietary and all rights are reserved.
Any recording rebroadcast or other use of this presentation in whole or in part without the prior written consent of Macquarie infrastructure Corporation is prohibited.
This presentation is based on information generally available to the public and does not contain any material non public information.
A station has been prepared solely for informational purposes, and is not a solicitation of an offer to buy or sell any security or instrument.
This presentation contains forward looking statements.
We may in some cases use words that convey uncertainty of future events or outcomes to identify these forward looking including those used to describe the anticipated specific and overall impact your COVID-19.
Forward looking statements in this presentation are subject to a number of risks and uncertainties.
A description of known risks that could cause our actual results to differ appears under the caption risk factors in our forms 10-K and 10-Q.
Actual results performance prospects or opportunities could differ materially from those expressed in or implied by the forward looking statements are.
Additional risks of which we are not currently aware could also cause our actual results to differ the.
The forward looking events discussed in this presentation may not occur.
These forward looking statements are made that's the big of this presentation. We undertake no obligation to publicly update or revise any forward looking statements. After the completion of this presentation, whether as a result of new information future events or otherwise except as required by law.
During today's call, we will reference the non-GAAP measures earnings before interest taxes, depreciation and amortization or EBITDA and free cash flow as defined by us.
A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our 10-Q and in the tables attached to our earnings press release.
Also participating in todays call is Macquarie infrastructure corporations, Chief Financial Officer, Nick well deal with that it is my pleasure to welcome and why she's Chief Executive Officer, Christopher Frost.
Thank you Jay and thanks to those of you joining our call. This morning.
Thank you and your families are safe and well.
Together with our financial results for the third quarter published early this morning, we announced that we have entered into an agreement to sell our MTT there.
They will discuss the sale of the quarterly results on our call. This morning.
Given the good performance of on TV as well.
We have been able to move forward without the shooter strategical subsidies notwithstanding the challenges presented by code, but I'd say.
Following a robust prices we are pleased with the outcome of the sideline C T and how it positions am I see to continue to pursue strategic alternatives and further on booking a value for shareholders.
Specifically, we have entered into an agreement to sell the wind PTC to an affiliate of Riverside Holdings LLC for approximately $2.685 billion, including the assumption of warranty.
Point $1 billion of debt outstanding.
The same is expected to close late in the fourth quarter were Twentytwenty early.
Early in Twentytwenty one.
Subject to the receipt of required approvals and satisfaction of the conditions precision the agreement.
At this point, we do not believe that any material hurdles to closing and the anticipated timeframe Rick.
Regarding the use of proceeds it is our intention to acquire all wouldn't it proceeds from the sale to the payment of a special dividend and the reduction of holding company debt.
Hi, good following closing these our intention to make a special distribution to shareholders.
Some of the $10.75 a share in cash.
Could we expect to apply approximately 400 million goes to the repayment for upset about holding company level vertical markets.
Yeah, most people will hit a record and payment dates for the dividends after closing.
Wrapping up the amount of net proceeds we assumed the following taxes and expenses will be paid.
Capital guidance taxes of approximately $158 million.
Transaction expenses. In addition to buy is already incurred of approximately $25 million and.
On the disposition payment to the company's external manager of approximately 28 million.
Considering the expected use the sale pricing, we expect out leverage ratio to be approximately 4.3 times net debt to trailing 12 month EBITDA.
We did not apply portion of the proceeds at the holding company debt leverage.
Leverage ratio would likely be the six times a level, we do not consider prudent cash.
Cash currently on hand will be used to repay or offsets the amount outstanding on our revolving credit facility well potentially to fund the repurchase of a portion of actually is.
If we did not repurchase any shares and the Kashi is not required to meet each other during the coming year, you will look to return it to shareholders in the subsequent special dividend.
In any case.
Holders will receive the benefit of any substance capital Hi, there was an increase in net proceeds on the sale of the remaining businesses or is distributions pride to such sales.
With the agreement for this time of volumes. He tea, we have characterized the business as a discontinued operation for financial reporting purposes as required.
With this in more detail shortly.
In summary, we are pleased with the outcome achieved in the sale of our NTT.
It leaves MRC in a strong position relative to maybe what the prices for Atlantic Aviation and MRC, Hawaii in a manner and at a time consistent with maximizing value for shareholders.
Touching briefly on the performance of our businesses in the third quarter.
We remain focused the Buffalo uninsured in the health and safety, though employees and customers.
We continued to be fortunate weve had a low incidence of type of 19, among our employees a circumstance attributable to the diligence of the teams on the ground.
Our businesses remain open and operational and continue to enhance safety messages for employees and customers.
They must these financial and operational results for the third quarter, primarily reflects one stable general aviation flight activity levels consist. The end of the second quarter <unk> listed the contribution of Atlantic Aviation on a sequential basis and to see the continued impact of typing on seat on the tourism industry in Hawaii.
Together with the results for corporate another I won't go into operations generated adjusted EBITDA that was down 13% versus the third quarter 2019 at substantially higher than the levels recorded in the second quarter of this year.
Importantly, we expect to see sequential improvement in EBITDA generation over the next 12 months and believe that our businesses will continue to produce sufficient cash to fund ongoing operations and growth capital projects, which I previously committed.
Looking more closely at the performance of our operating businesses.
Atlantic Aviation and the U.S. General Aviation industry show continued resilience through the third quarter.
Adjusted General Aviation plot activity was stable throughout the quarter down by approximately 14% industry wide. This is the prior comparable period.
Consistent with the end of the second quarter Atlantic Aviation solar shifting patterns of activity towards probably never be laser oriented locations and away from business oriented locations.
International events travel, which we previously highlighted as key contributors to a full recovery remains subdued Atlantic Aviation continues to monitor this closely and believes the recovery will largely depend on a more complete roll back okay. Good 19 precautions across geographies.
That's expected in this context activity at the airport. So much the business operates was lower than the industry I believe down 19%.
The deeper decline reflects the weighting of its network toward larger more populous and business focused regions, although not wasting remains opposed to do for the growth of the business over the long term.
Similarly fuel sales continued to be disproportionately affected by the shift in mix the use of smaller aircraft on shorter flights and were down approximately 23% versus the prior comparable period.
Regarding cost savings at Atlantic Aviation.
Management team continues to control operating expenses allocating resources necessary somebody tysons with increasing activity.
You said they cost savings, excluding the environmental remediation provision booked last quarter totaled approximately $60 million.
The sustainability of these savings will depend on the right to recovering slot activity. Although it is expected that expense reduction efforts. This year will yield some permanent savings.
The performance of them I see why it was steady in the third quarter due to the continued requirement for visitors to current <unk> for 14 days on a life.
The state was effectively close to tourism throughout the quarter.
Tourist visits were down.
4% during the third quarter compared to the same period in 29 seed, resulting in a 37% reduction in the amount of gas sold as demand remained uses the commercial customers, including resort hotels and restaurants.
Importantly on what type of system. The covenant listed before he died quarantine requirement provided visitors can demonstrate that they are tested negative for Kb 19 within 72 hours crossword Robby.
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Since then the number of visitors to Hawaii has increased.
Recovery is likely to be gradual and result in a modest uptick in gas sales side for the remainder of the year.
She was of course locked down so quarantine requirements are not reading parties.
The management team in Hawaii continues to control costs, while maintaining safe and reliable services to its customers.
Although classified as discontinued operation I noted <unk> continued to perform well in the third quarter.
Utilization averaged 95.8% and ancillary services revenue were broadly flat with the prior comparable period.
Market conditions remain constructive for storage across most products and that was reflected in contract win deals during the period.
All capacity that came up for renewal was released two new or existing customers moderately high storage Reits. So.
Certain custom to sort through new contracts early to ensure continued access to storage capacity.
I'm Tt's management team maintained strong cost control.
Expense increases related to kind of benign team largely offset by reductions in other areas.
This point I'll turn the call like this it makes for some additional color on the results for the quarter as well as how applicable performance for the remainder of the.
Thank you, Chris and good morning, everyone.
Before I discuss our financial results for the quarter I would like to provide a bit more color on that classification of on T.T. as held for sale and therefore, a discontinued operation.
The current period I want to change the R&D Institute discontinued operations in the prior reported periods of solar and wind power generation businesses as well as the joint venture interest in a solar power development company with discontinued operations as well.
I think 99 P.T. as held for sale triggered to additional events both of which are flowing through our financial results for the quarter.
First by entering into an agreement that is likely to result in the sale of on cheap treat in a taxable transaction, we booked a tax on the difference between book and tax basis in the business as a deferred liability.
$158 million increase now deferred tax liability.
From a current liability on closing of the sale.
Second we were required to assess the carrying value of our investment be 90 Chaney for any impairment.
That assessment indicated that the carrying value was quite a bit scary, but you gave are you being determined by reference to comparable businesses in the market less cost associated with selling the business.
Consequently, we wrote down the value about this treaty by $750 million of which 725 million was goodwill you can see that in the financial statements footnote for discontinued operations.
We also reviewed the carrying value of Atlantic Aviation is an MRC hawaii's assets, including goodwill and determined that no impairment was required in respective segments.
Collectively how continuing operations Atlantic Aviation animosity, Hawaii, and the corporate and other segment showed strong improvement in the third.
Third quarter from the lows for the second quarter.
Consolidated adjusted EBITDA, excluding non cash items generated in the third quarter totaled $16 million down from the $69 million recorded in the prior comparable period.
Adjusted free cash flow conversion was good.
Lower interest expense and lower maintenance capital expenditures not wholly offset an increase in tax liabilities. The XI entitled and must see generated adjusted free cash flow of $38 million in the quarter down from $50 million in the prior comparable period, but up nicely from the second quarter, we got.
Operating businesses.
Atlantic Aviation generated EBITDA of $54 million in the quarter down on the prior comparable period was up sharply from the $17 million recorded in the second quarter.
I note that second quarter EBITDA included a $7 million provision remediation of environmental matters.
Expense savings continue to support the Atlantic Aviations financial performance as Chris noted net savings year to date have been approximately $15 million.
Excluding the expense increases in the first quarter of the year savings achieved since the start of the pandemic had been approximately $18 million.
Well savings remain activity dependent Atlantic aviation was generating savings of approximately $2 million per month as of the end of September.
Atlantic Aviations free cash flow generation was strong at $39 million versus $42 million loss cheap.
Lower interest expense taxes, and maintenance capital expenditures made up for some of the decline.
I used on Atlantic Aviations content formats that business is expected to be able to make all its obligations, including the funding of the growth projects to which it has committed using internally generated resources.
Must see Hawaii generated EBITDA of $7 million in the current period the same as in the second quarter compared with $12 million in the third quarter and 29 thing [noise] based.
The business continued to be affected by the states mandatory quarantine visitors during the quarter right.
Free cash flow was $4 million compared with $8 million in 2019.
Looking ahead, we expect am I see to generate EBITDA from continuing operations for the full year Twentytwenty between 202 hundred $15 million as Chris discussed Atlantic Aviation is showing steady performance and that has continued through October.
Assuming a continuation of current trends through the balance of the D expect Atlantic aviation to generate EBITDA of between 195 and $195 million in Twentytwenty, we expect and I see Hawaii to generate EBITDA for the full year in the range of between 35 and $40 million.
Selecting our expectations around a gradual recovery in tourism, Chris noted.
Consolidated EBITDA guidance assumes holding company level expenses in the corporate and other segment of approximately $20 million.
We ended the third quarter with $429 million of cash on hand across <unk>, continuing operations, including a $150 million drawn on our corporate revolving credit facility.
You'll recall that we drew down on our revolving credit facilities out of an abundance of caution at the beginning of the pandemic.
Given the performance of the ongoing businesses in the third quarter, we repaid 449 million $599 million drone.
Given the sub 92, who view retirement of the balance of cars.
At the end of September leverage was 5.7 times net debt to EBITDA now ongoing businesses over the trailing 12 month period.
Considering the use of proceeds from the sale of on to see people see heading into 2021 with consolidated leverage of approximately 4.3 times as Chris mentioned.
Expectation that EBITDA growth would jurors leverage from that level during 2021.
I'll now hand, the call back over to Chris Lafond comments. Thank you.
Thank you Nick.
This quarter was an exciting extremely busy one for him I see.
We are pleased with the outcome of the sales prices for line T T and with the results generated by our ongoing businesses Atlantic Aviation in particular.
We continue to expect to see a recovery going into Twentytwenty, one which will support our ongoing pursuit of sales because there were many businesses.
We continue to believe that the sales they might say or its remaining businesses. He is the best path to unlocking value for shareholders.
Wow lets you mean, the remainder of the year plays out as expected we will end 2020 in a strong position with ample financial flexibility going forward.
With that I think to Genfuel participation that cold. This morning at this time I will ask the operator to open the phone lines for your questions.
Ladies and gentlemen, as a reminder, if he would like to ask a question. Please press star followed by the nickel mine like your telephone keypad, well pause for a moment took upon the Kunaev aster again, that's timeline.
And your first question is from the line of TJ Schultz with RBC capital markets.
Good morning, TJ, Hey, good morning, Congrats on the transaction.
And Chris I, just want to look ahead to that.
Aviation so on.
Atlantic to trend that to transact on that do you feel you need to see the complete picture after.
The cobot impacts subsides, our two potential buyers want to see the impact and it's the largest question the flight activity levels for some of these large events or is that the run rate of a general corporate travel post.
Post covered just any color on on the timing of that process. Thanks.
Yes TJ.
His remarks, we remain committed to the sale or they might see Hawaii to Atlantic aviation to unlock value. We haven't set a timetable for completion of those transactions and based on our pre pay that valuation marks on the Atlantic Aviation I believe it is likely to be our most valuable.
Writing business and therefore.
I think what do you see a period of time until we see full recovery all general aviation traffic would be the value maximizing strategy for shareholders. Even when you look at time adjusting the distribution.
I'm sorry.
I would sort of say, but we.
We anticipate sort of said in the prepared remarks and on previous earnings calls.
But you know we expect this year to continue to remain.
Our current trading levels, I'd say 20, 20% down on flight activity, but as we move into 2021, we anticipate further recovery business track the.
Further recovery in terms of international and the data driven traffic.
So that's the way we think keep in mind.
Okay and then.
At this point what are the expected tax impacts the sale doesn't manic or Hawaii or are the levers you have there from a tax strategy perspective.
Well I think there's a sort of said previously.
<unk> said, we wouldn't sell Atlantic aviation via a take down the listed entity that would be a a tax free transaction for shareholders.
In Hawaii.
Hawaii, we haven't disclosed the tax basis, so that is not but they would be there would be some tax leakage to the extent that be within execute the sale of Hawaii through life.
So for cash.
Okay I'll leave it there thank you guys.
Great. Thanks, good morning.
Your next question is from the line of Tristan Richardson the truth Securities.
Good morning, Kristen Hey, good morning.
I really appreciate all the commentary around I MTT there.
One quick question there could you talk about the tax line item that you you called out for I MTT was was the goodwill write down beneficial to basis for the purposes of taxes or.
Was it just kind of reflective of where your basis was.
Good morning, Justin so the goodwill write down.
Get another tax impact on the amount of Texas that we've disclosed to the hundred $58 million is more reflective of where the tax basis or they might assays investment.
Non cheating woes, and obviously the purchase cost tight oil I bought it expects to be paid by Riverstone.
Helpful. Appreciate it and then and then Chris.
I appreciate the commentary on the remaining two businesses it sounds like the guidance I'm paraphrasing here, but it seems sort of like a gradual recovery in Hawaii, but no specific recovery in it in Atlantic has that kind of a fair way to think about the 200 to 215.
Well, Joe maybe tie that cruise.
I think as I sort of said in the prepared remarks first and we anticipate the balance that you see probably stabilize of what we've seen at the moment.
But our expectation is that even 2020 one.
As we see an increase in business activity and we also see an increase in international traffic and events that is likely to close out the the recovery over the course of 2021.
Okay. Thank you guys appreciate it.
Your next question is from a line of Steve True Soundless Kennedy capital.
Hi, good morning, how are you.
Well thanks Congrats.
Congratulations on the I.M.T.T. sale.
Wanted to.
Delve a little bit deeper I know in the press release it mentioned that.
The company looks to repay or offset holding company level that of the 400 million approximately for the convert.
You could delve a little more deeper into the whole concept of repair offset I'd appreciate it. Thank you.
[noise] [noise] Oh, Okay. So I guess the first comment he said, we're obviously pleased to be able to reserve enough cash to take out the converts we convinced of this important.
In ensuring that the go to prudently.
Prudently managed balance sheet.
In terms of its gonna language and there is no.
Vance if you like produce triggered by the sale of Onsie Twosie. That's one last night its converts and so we'll have a look at.
Okay.
I would advise convince others.
As closing the sale of one to two.
So the bottom line is you don't think there is a change of control put or requirement to diffuse the bonds. Okay correct.
That's correct.
Okay, Oh, I read a little bit differently, but thank you for the color.
Thank you ladies and gentlemen.
I would I like to turn the conference over to Christopher for Us.
Thank you for participating in our conference call today, we look forward to speaking with you on our next quarterly call process that the circumstances were we so I wish you good day.
Thank you, ladies and gentlemen for participating in today's conference call. We ask that you now disconnect your lines.
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