Q4 2020 Macquarie Infrastructure Corp Earnings Call
Good morning, and.
Welcome to the Macquarie infrastructure corporations fourth quarter, and full year, 'twenty and 'twenty earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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Please note that this conference is being recorded I went on.
And I'll turn the conference over to Jay Davis head of Investor Relations. Please go ahead.
Thank you and welcome to Macquarie Infrastructure Corporation's earnings Conference call. This covering the fourth quarter and full year 'twenty and 'twenty. Our call 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 <unk>.
10-K, 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 Slash M I C.
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 and whole or in part without the prior written consent of Macquarie Infrastructure Corporation is.
Mohit.
This presentation is based on information generally available to the public and does not contain any material nonpublic information. The presentation has been prepared solely for information 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.
And some cases use words that convey uncertainty of future events or outcomes to identify these forward looking statements, including those used to describe the anticipated specific and overall impacts of 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 form 10-K, our actual results performance prospects or opportunities could differ materially from those expressed in.
Or implied by the forward looking statements.
Additional risks of which we are not currently aware could also cause our actual results to differ the forward looking events discussed in this presentation may not occur.
These forward looking statements are made as of the date 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-K and and the tables attached.
And to our earnings press release.
Also participating in today's call is Macquarie infrastructure Corporation's Chief Financial Officer, Nick O'neill with that it is my pleasure to welcome Mic's, Chief Executive Officer, Christopher Frost.
Thank you Jay and thanks to those of you joining our call. This morning, along with our financial results for the fourth quarter and full year 'twenty and 'twenty published early this morning, we filed a registration statement with the SEC, whereby we proposed to reorganize the company to be able to sell the Atlantic aviation price and selling them I see Hawaii.
Without incurring corporate capital guidance tax.
Subject to FCC clearance and shareholder approval, we what do you expect to implement the reorganization only after we have entered into an agreement to sell the Atlantic Aviation and just prior to closing of such sale.
We also followed the schedule T O and offer to purchase our convertible senior notes via tender offer commencing today.
We will discuss the proposed reorganization and our 'twenty and 'twenty results the tender offer and DAU guidance for 'twenty and 'twenty one on our call. This morning.
Turning to the proposed reorganization.
During prior calls I have said that our pursuit of strategic alternatives would likely maximize value three separate sales about what price businesses.
Currently the most efficient price this would entail the sale of M. I C. Hawaii, followed by the sale of Atlantic Aviation as the remainder of M. I C.
This sequence would be tax efficient as corporate capital gains tax would only be paid on the sale of the relatively small low M. I C Hawaii business.
The sale of Atlantic Aviation virus sale of the stock of M. I C would not give rise to corporate capital guidance tax.
However, the sale of M. I C, Hawaii would be subject to the approval of the Hawaii Public Utilities Commission or the commission.
As is customary and transactions involving regulated utilities received the approval from the commission could take 12 months so long ago.
The approval process could delay the sale of Atlantic aviation or make the sales subject to the Pri completion of the sale of M. I C. Hawaii.
Our highest priority is maximizing shareholder value through the sales of our remaining operating businesses.
Therefore, we are proposing to reorganize M. I C to facilitate the sale of Atlantic Aviation price of the sale of M. I C, Hawaii without incurring corporate capital guidance tax.
To achieve this we intend to reorganize M. I C into a listed limited liability company or L. L C taxed as a partnership.
At the same time, we intend to distribute M. I C Hawaii up to the L. L C.
C. L. L. C would then be able to sell the Atlantic aviation and distribute all the net proceeds to unit holders.
The last step and the prices would be the sale of the LLC, they're not on the only M. I C. Hawaii.
Completion of the silo V. L. L C would be subject to the commission's change of control approval process I mentioned earlier.
We need shareholder approval for the reorganization, which we may seek potentially and light name.
To be clear, we expect to implement the reorganization only after we have entered into an agreement to sell the Atlantic Aviation and just prior to the close of such sale.
Bold firmly believes that the reorganization is and the best interest of shareholders as it may facilitate the sale of Atlantic aviation and a tax efficient and timely manner.
Turning to the performance of our ongoing businesses in the fourth quarter and full year 'twenty and 'twenty.
Above all we continue to focus on ensuring the health and safety of our employees and customers. Our businesses have remained open and operational and have continued to serve their respective customers without interruption.
We are extraordinarily grateful to the employees and our operating businesses, many of whom are and the field every day delivering the essential services provided by Atlantic Aviation and M. I C Hawaii and.
And my CS financial and operational results for the fourth quarter and full year, primarily reflect one improving general aviation flight activity that resulted and the contribution from Atlantic aviation at the upper end of our expectations and to the easing of travel restrictions in Hawaii during the fourth quarter that drove an.
<unk> gas sales and results from our M. I C. Hawaii segment also at the upper end of our expectations.
Together, our remaining operating businesses, including corporate and other generated adjusted EBITDA of $66 million and the fourth quarter and $220 million for the full year.
At the individual business level.
Atlantic Aviation and benefited from stable General aviation flight activity during the fourth quarter on average flight activity at the airports on which Atlantic Aviation operating was down approximately 18% versus the fourth quarter and 2019, a slight improvement from down 19% in the third quarter.
On the same basis.
The period around the holidays and knee were particularly good with several locations reporting growth and flight activity versus 2019.
As a result general aviation flight activity was down by on average of just 15% and December compared with the same period and 2019.
Underpinning. The result was the continued generation of a meaningful level of gross profit from hangar rental and.
Atlantic Aviation continues to invest and hangar capacity at many of its locations, including the recent doubling of hangar space and Montrose, Colorado via an acquisition and new construction that will result, and a 50% increase and hanger and office space and Chicago Executive Airport.
Expenses remained under control and the fourth quarter and full year savings totaled $22 million versus 2019.
The management team at Atlantic Aviation continues to evaluate expenses across the board and believes that approximately $5 million of the savings achieved will be permanent.
As a result Atlantic aviation generated adjusted EBITDA of $58 million, and the fourth quarter and $195 million for the full year.
The contribution from M. I C, Hawaii improved and the fourth quarter with the state reopening to visitors from the mainland as well as from Japan, Korea and Canada.
As a result gas sales increased particularly at the end of the fourth quarter during the holiday period.
<unk> sales were down 27% versus the fourth quarter of 2019, compared with being down 37% in the third quarter the.
The improvement reflects the reopening of some of the resorts restaurants, and commercial laundries and Hawaii.
And with the improved activity M. I C. Hawaii generated adjusted EBITDA for the fourth quarter of $12 million and.
$41 million for the full year.
The trends we saw in the fourth quarter of 'twenty and 'twenty at both Atlantic Aviation and M. I C. Hawaii has continued into early 2021.
At this point I will turn the call over to Nick for some additional color on our capital management strategies and guidance for 'twenty and 'twenty. One. Thank you Chris and good morning, everyone. I Trust, you and your families are safe and well.
As Chris mentioned at the outset other coal today, we launched a tender offer for any or all about 2% convertible senior notes due 2023.
The tender offer is at par plus accrued interest and will remain open until March 16 2021.
We encourage noteholders to refer to the tender documents. We have filed this morning for details on both the terms of the alpha and out of acceptance.
Together with the special dividend of approximately $960 million that was paid on the eighth of January and a successful tender will see M. I C. Deploy all the net proceeds from the sale of IMTT as foreshadowed in on announcement of the sale last November.
Assuming all the convertible notes attended will have no debt at the M. I C corporate level as we repaid the balance outstanding on our revolving credit facility prior to year end.
I'd point out that following the sale of IMTT and our corporate revolver was canceled and in accordance with the terms of that agreement.
Leverage across our continuing operations was approximately four times net debt to 'twenty and 'twenty adjusted EBITDA at year end.
After adjusting cash on hand for the special dividend and costs and taxes in relation to the sale of IMTT.
Today with approximately $330 million of unrestricted cash across M. I C. After providing for both the tender offer and taxes and costs related to the sale of IMTT and our liquidity position is strong.
Regarding our outlook for 'twenty and 'twenty one.
We assume a successful rollout and effectiveness of Covid vaccine programs and the U S and internationally throughout the for Atlantic Aviation, we expect that with the role that general aviation flight activity will recover from current levels beginning in the third quarter and will reach 2019 levels.
By the end of the EE and.
Importantly, we also expect the industry to revert to pre Covid flight activity patents, including a return of international event and business oriented travel.
For M. I C. Hawaii, we do not expect the number of visitors to Hawaii to recover to pre COVID-19 levels. They see as a result, we expect gas sales to be in line with 'twenty and 'twenty.
As noted in our press release, we expect Atlantic aviation to generate EBITDA of between 220 $240 million in 'twenty and 'twenty one.
Our guidance for EBITDA generated by M. I C. Hawaii in 'twenty and 'twenty, one is a range of between 30 and $40 million.
We expect the cost recorded in our corporate and other segment to total approximately $20 million in 'twenty and 'twenty one in line with 'twenty and 'twenty.
Corporate and other reflects net cost related to the short term provision of transition services to IMTT and the absence of a profit share payment from our prior investment in a renewables platform.
We therefore expect MRC to generate consolidated EBITDA and a range of $230 million to $260 million in 'twenty and 'twenty one.
Maintenance capital expenditures are expected to be elevated relative to historically normal levels, including some catch up from 2020.
We expect to generate consolidated free cash flow and a range of $130 million to $160 million and importantly, we expect free cash flow generated for the E to fund gross capital expenditures and required debt amortization.
Gross capital expenditures are forecast to be $70 million to $80 million of which approximately $40 million is expected to be invested and projects currently underway or to which we've previously committed.
Most of the gross investments relate to Atlantic Aviation. They include both projects that we are undertaking to renew or extend airport leases and projects that increase the revenue generating capacity of our F. B O's for example through hanger developments lock those Chris mentioned earlier.
Debt amortization is expected to be approximately $11 million for the E almost entirely at Atlantic Aviation.
We do not expect to reinstate a regular dividend in 'twenty and 'twenty. One in addition to the $11 per share special dividend paid in January we intend to focus on returning capital to shareholders in the form of net proceeds from the sale of our operating businesses in the men and Chris outlined earlier.
At this point I will hand, the call back over to Chris.
Our highest priority remains unlocking shareholder value through the sale of M. I C or separate sales of Atlantic Aviation and M. I C. Hawaii.
The proposed reorganization of M. I C provides us with additional flexibility and this process, notably with respect to the timely and tax efficient sale of Atlantic aviation prior to the sale of M. I C. Hawaii. Additionally.
Additionally, we intend to apply a portion of the proceeds from the sale of volume T. T to the retirement of our convertible notes and have today launched a tender offer for any or all the notes.
Our fourth quarter and full year financial and operational results reflect improving fundamentals and each of Atlantic aviation and M. I C. Hawaii and both businesses are performing in line with our expectations in 'twenty and 'twenty one.
We have initiated guidance for the full year based on the assumption that the rollout of Covid vaccine continue as planned.
I again want to thank how employees for their resilience during what has been a challenging year.
Thank you again for your participation and our call. This morning, I will now ask our operator toy P. On the phone lines for your questions.
Yeah.
Thank you at this time, we'll be conducting a question and answer session.
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One moment, please while we poll for questions.
Our first question today comes from T. J Schultz of RBC capital markets. Please proceed with your question.
Good morning, J J and.
Good morning. Thanks.
Just first on the reorganization of the structure.
Just so I have it straight so if you sell.
Aviation first and those proceeds are distributed do you still eventually.
On the tech impact when you saw Hawaii.
Yes, a couple of things and that Youre right that under our talent and structure T. J. If we were to sell the Atlantic aviation from under and I see that moving to capital guidance tax.
On on that transaction with the proposed restructure it will enable us to sell the Atlantic aviation before M. I C, Hawaii and without incurring capital gains tax.
The distribution up to the L. L. C M. I C. Hawaii is a taxable event.
And as I outlined in our prepared remarks, if we were just so M. I C. Hawaii and then it tight down on.
The listed entity to pay to restructuring selling Atlantic and then a takedown on the L. L C. All.
And all other things being equal the after tax net proceeds would be unchanged.
Okay understood.
And then just one question on the outlook.
And for aviation.
And you look for aviation activity to get back to 2019 levels.
And looking into maybe next year do you expect the mix between business and international leisure and and some of the larger events to be similar or are.
Some activity levels and potentially offsetting.
Declines that we that we could see.
And some of the business travel.
And it looks I think.
And we sort of sit in the prepared remarks, J J, Alex big patients but.
And once it's been a successful rollout.
<unk> vaccine programs.
Are likely to see an acceleration in the recovery on demand for G I, particularly around international.
Driven and and corporate travel and.
And.
And based on our conversations with customers.
And I suspect that there is significant pent up demand.
And for travel and when government restrictions and the fact that there is a widespread vaccine rolled out wed likely to sort of see that recovery to normalized levels.
Yes.
And in 'twenty, 'twenty, one and returning to normal patterns of activity by 2022.
Okay. Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Yeah.
Our next question is from Josh Culberson of Bam. Please proceed with your question.
Hey, guys, just just to flesh out the timing a little bit you said.
You would hold like if you were to so Atlantic aviation.
And you would file.
For shareholder approval.
I'm just a little confused on on yes.
On the call with you.
The timeline.
You know how all of that would have led and gave.
And deal was announced and.
And then we go through the shareholder process or and then just.
Yeah. So.
What I noticed you did my prepared remarks is that we require shareholder approval.
The merger.
And based on our current timelines that we would anticipate seeking shareholder approval.
All the merger it potentially in late May.
I also made the point that we do not intend.
This stage and implement the merger until such time as we have entered into an agreement to sell Atlantic Aviation.
And just price as the clouds and the reason and so that reflects our objectives that we acknowledge the fact that and LLC may give rise to index eligibility and issues and.
And that may cause a potential rotation of the richest out there.
And therefore, our objective is to minimize to the extent possible with periods of time with the LLC will own and Atlantic.
Atlantic Aviation and to the extent that the LLC unused Atlantic aviation.
And we've already entered into an agreement to sell it and completion is imminent.
As well as the.
Proposed use of proceeds and any special distributions coming out of that.
And the first step of the process is too.
C share holder with for Eagle Ford.
For the quarter reorganization.
But not to put it into place until such time as with incidence on agreement to sell the Atlantic.
But just project loans.
And so then I mean.
And you say that it seems to me like you.
I would like to have a deal to so.
Before the other.
No I think.
On.
And I sort of separate out the the approvals that we need to go through in order to implement the restructure.
And that the sort of <unk>.
Seeking shareholder approval to implement the restructure them.
And may or may not be the same timetable as the sort of the sales of.
And as Atlantic.
I would say with respect to.
And our objectives with the sale of Atlanta is but it's certainly my objective.
And complete the sale of Atlantic this year.
But you could announce it.
I mean theoretically tomorrow, and then go through the shareholder rework part and then close them.
It's only the period of time between when.
The actual rework happens on the sale closes that you're concerned about.
I'm sorry, not not show other question I'm, saying from the when you were talking about there.
Uh huh.
Sorry on the turnover and the shareholder vote for sure on the possible index.
The concern is from the time the reorganization is actually implemented to the time Atlantic Aviation.
Closest.
Correct and so what we're saying when you get announced.
And you could announce Atlantic Aviation Tomorrow and theory right. It takes a few months for a deal to get done and have the re org sometime in between there and then close Atlantic Aviation and I forgot.
Yes.
Yes that is a possibility I think the point, we were making was.
The shareholder approval process or the other.
And when I sit and.
And we will be looking to see potentially in late may.
And just simply making the point that once we have obtained shareholder approval, we would only implement and see the reorganization.
And they have entered into an agreement and price declines.
Since the last one I got it right.
Okay, great. Thanks, so much guys.
We have reached the end of the question and answer session and I would now like to turn the call over to Christopher Frost for closing remarks.
Thank you for participating in our conference call today, I Hope you and your families continue to remain safe and well we look forward to engaging this weighted in the coming months and updating you on our progress to that next quarterly call, we'll price it that as circumstances warrant.
Thank you thank.
Thanks, everyone.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
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