Q1 2021 Macquarie Infrastructure Corp Earnings Call
Good morning, and welcome to the Macquarie Infrastructure Corporation first quarter 2021 earnings conference call.
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After the Speakers' presentation, there will be a question and answer session and.
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And I would now 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 and this covering the first quarter of 2021 on.
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 10-Q, with the Securities and Exchange Commission. These materials were released this morning and copies may be downloaded from our website at www.
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Before turning the proceedings over to Macquarie infrastructure Corporation's 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.
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And 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 in 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 <unk>.
Slide 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-Q and in the tables and.
Cash to our earnings press release.
Also participating in today's call is Macquarie infrastructure Corporation's Chief Financial Officer, Nick O'neil 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, we intend to provide you with an update on our results for the first quarter, including our revised guidance the sales processes involving our remaining businesses and out to upcoming shareholder meetings.
And I will begin with a proposal that will be put before our shareholders. Later this week and next.
Our special meeting of shareholders will take place at three P. M. Eastern time on Thursday may six at.
That's a special meeting shareholders will be asked to approve a plan of merger as part of a reorganization of the company under the plan M. I C will become a wholly owned subsidiary of a newly formed entity Macquarie infrastructure holdings, LLC or M. I H, the reorganization and facilitates the sale of our remaining businesses.
In any order without altering the tax efficiency of such sales is that my age would be treated as a partnership for federal income tax purposes.
The approval of the plan authorizes Mic's board of directors to determine if and when rail warehousing the company would be and the best interest of shareholders.
Consistent with our previous statements, we expect to implement the reorganization and only after we've entered into an agreement to sell the Atlantic Aviation and just prior to the closing of such sale.
We currently expect to sell the Atlantic Aviation this year.
The regulatory approval process associated with them I see Hawaii. It makes it more likely that aside on that segment because in 2020 two.
Please refer to our proxy statement for a complete description of the masses to be considered at the special meeting of shareholders.
We would welcome the opportunity to discuss the proposal with any shareholders, who may have questions about the mess up.
Our annual general meeting of shareholders will commence at 10, a M. Eastern time on Wednesday May 12.
At that meeting shareholders will be asked to approve the reelection of our directors to one year terms to ratify the appointment of KPMG as our water says for 2020, one and to approve on an advisory basis, the compensation of ASUR concert executives.
Both the special meeting and the annual meeting will be conducted virtually and instructions on how to participate will deliver to shareholders of record with the relevant proxy statements and.
And I used it and our earnings press release published this morning, the sale processes involving our remaining businesses are progressing.
Given this and not wanting to prejudice mic's position with potential buyers and we will limit our remarks during this call to the following points.
We are pleased with the level of interest from potential Baas, particularly now Atlantic aviation business.
And remain confident in our ability to unlock value for shareholders through separate sales of Atlantic Aviation and M. I C. Hawaii.
In connection with the sale processes, we are winding down operations of our shared services Center M. I C Global services fee.
<unk> other than that is supporting the public company are being allocated to or reconstituted in our remaining businesses.
Following the sale of Atlantic Aviation, we expect to distribute the net proceeds to unit holders of M. I H by way of a special distribution.
The subsequent sale of M. I C. Hawaii would be achieved through a sale of the units of M. I H and the unit holders would receive a per unit consideration from the purchase so.
I will not speculate on any outcomes with respect to value or the timing of any sale announcement.
Regarding our ongoing businesses.
We continue to focus on ensuring the health and safety of our employees and customers and the.
And the protocols, we've had in place for the policy and to protect against COVID-19 continues to work effectively.
The operations of both of our businesses are being carried out without interruption.
M I CS financial and operational results for the first quarter reflect an acceleration of the COVID-19 vaccine program and the U S. Yielding one and increase in general aviation flight activity that exceeded our expectations and two a substantial uptick from the number of visitor arrivals to Hawaii that contributed to an increasing gas consumption.
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Together with lower expenses at the holding company level M. I C generated approximately $77 million of adjusted EBITDA, excluding non cash items for the quarter up 2% on the first quarter and 2020.
The fundamental drivers of our operating businesses improved during the first quarter.
Based on data reported by the FAA flight activity nationwide was up 8% and the first quarter versus the first quarter and 'twenty 'twenty and just 3% below the level recorded in 2019.
Activity levels for the month of March exceeded those in March or 2019 by 7%.
Flood activity at the airports on which Atlantic Aviation operates was up 5% for the quarter versus 2020 and was just 6% below the level recorded in 2019.
Activity at those airports and the month of March was up 3% versus March of 'twenty and 19.
The difference and the overall industry results and those of our business remains Atlantic Aviation's exposure to business oriented locations that have yet to see a full recovery in activity.
As has been the case for much of the past year leisure oriented locations and the Intermountain West and Florida regions continued to lead the recovery. However, we also saw an increase in activity and business oriented locations, including New York and Chicago in March.
On top of the increase and flight activity Atlantic Aviation continued to benefit from steady growth in tenant hangar rent year over year.
Activity levels across the portfolio increased through the first half of April although slowed as expected and the second half of the month, reflecting typical seasonal factors.
The driver of the performance improvement and I see Hawaii was increasing visitor arrivals to Hawaii.
This resulted in an increase in consumption of gas by commercial and industrial customers, including hotels laundries and restaurants.
The number of visitors increased to 33% of 2019 levels and the first quarter up sequentially from 19% and the fourth quarter of 2020.
Preliminary indications are that the number of visitors to Hawaii and April was consistent with what we saw in March.
At this point I will turn the call over to Nick for some additional color on our operating performance capital management strategies and revised guidance for 2020 one.
Thank you, Chris and good morning, everyone I'll begin by commenting on some of the capital management initiatives, we completed during the quarter.
In February we launched a tender offer for any and all of our convertible notes of which there were approximately $403 million outstanding. The offer closed on March 16, with approximately $359 million of notes being tendered at par plus accrued interest.
Since then we have purchased an additional $6 million of notes in the open market also at par.
In total we have repurchased 91 per cent of the notes outstanding and we expect to continue to acquire and notes and the open market in any case, we will continue to reserve cash equal to the balance of the notes outstanding.
In April we fully repaid the $100 million of senior secured notes outstanding and M. I C, Hawaii and amended the remaining debt to remove the change of control risk that could have otherwise affected the reorganization of M. I C and the subsequent sale of M. I H and M. I C Hawaii.
The benefits of the repayment and amendment that day, one facilitate the timely reorganization of M. I C and the sale of Atlantic Aviation prior to the sale of M. I C, Hawaii and to leave M. I C. Hawaii with a prudent level of leverage on a standalone basis as the business recovers the.
Debt outstanding at out M. I C. Hawaii businesses totaled $94 million and consists of two term loans with a weighted average remaining maturity of approximately 2.3 years.
We had approximately $290 million of unrestricted cash available on our consolidated balance sheet at the end of April or approximately $250 million after reserving for the convertible notes remain outstanding.
We believe this amount of cash results and a reasonable net leverage position and he is an appropriate level of liquidity given the current and expected performance of our businesses.
Turning to our financial performance for the quarter.
Gross margin at Atlantic Aviation is still being affected by the mix of activity across the portfolio, including smaller planes shorter trips and leisure oriented travel as a result gross margin was down 2% versus the prior comparable quarter. However.
However, the team at Atlantic Aviation continued to manage expenses effectively Atlantic aviation generated adjusted EBITDA of just over $67 million for the quarter up 2% over the first quarter in 2020 the free cash flow of over $50 million produced by Atlantic Aviation.
A $10 million increase year over year reflects lower interest expense cash taxes and maintenance capital expenditures.
Importantly, the strong cash generation positions the business well with respect to funding its growth agenda for the year.
And I see Hawaii generated adjusted EBITDA of slightly under $14 million and the first quarter down 11% versus the first quarter last year. The result reflects a decrease and the amount of gas sold partially offset by lower selling general and administrative expenses.
The free cash flow produced by M. I C. Hawaii of $9 million was approximately $1 million higher than in the first quarter of 2020.
As with Atlantic Aviation, It reflects lower maintenance capital expenditures cash taxes, and interest, but partially offset by the reduction in EBITDA.
On the back of the performance of our businesses and the first quarter, we raised our EBITDA guidance for 2020. One we now expect Atlantic aviation to generate between $245 million and $260 million of adjusted EBITDA for the year. The increase is inclusive of any expenses allocated to the.
Business as a result of the wind down of our shared services Center.
Based on demand during the first quarter, we believe that the ongoing rollout of effective COVID-19 vaccines will continue to boost activity at leisure oriented locations through the summer.
Consistent with our prior guidance, we assume the bulk of the recovery and business oriented locations as well as international and event driven travel will occur during the second half of the year. We continue to expect the business to return to 2019 levels, including patents of activity by the end of 2021.
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Factors that could affect the outcome to the upsides include and acceleration in the reopening of the economy or sustained leisure demand above historic levels through the remainder of 2021.
The current guidance does not assume a spreading of COVID-19 variance resistant to the current therapies or resurgence of COVID-19 generally.
The bad and expected number of visitors to Hawaii during the first quarter supported and upward revision and the adjusted EBITDA guidance for M. I C. Hawaii to between 35 million and $45 million in 2020, one assumed volume driven increases in revenue are expected to be partially offset by <unk>.
Higher propane costs and higher selling general and administrative expenses.
We expect the cost recorded.
And our corporate and other segment to be lower than previously estimated due to the wind down of our shared services center.
Segment adjusted EBITDA is now expected to be a loss of approximately $15 million for the down from a $20 million loss previously at this point I will hand, the call back over to Chris for a few closing comments.
Thank you Nick.
Our highest priority remains unlocking value for shareholders through the sales of both Atlantic Aviation and M. I C. Hawaii.
The process of related to the sales are progressing and we are confident now ability to sell the planting aviation in 2020 one.
If approved by shareholders at our special meeting on Thursday of this week the flexibility to reorganize M. I C will allow us to complete a sale of Atlantic aviation.
Rice with sale of M. I C, Hawaii without altering the tax efficiency of the sales.
We believe the additional flexibility provides a real benefit to shareholders annual board of directors unanimously recommends a vote in favor of the proposal.
If you have not yet voted please do so.
With the anticipated sales of our operating businesses, we are moving to unwind I shared services function.
Our operating businesses are performing well and increases in general aviation flight activity and and the number of visitors to Hawaii led to better than anticipated financial performance and the first quarter.
On the strength of that performance, we have raised our consolidated earnings guidance for 2020, one to a range of between $265 million and $290 million.
Thank you again for your participation and a cold. This morning, I'll now ask our operator to open the phone lines for your questions.
Thank you Sir at this time, we'll be conducting a question and answer session.
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Our first question today is from Tristan Richardson of Truest Securities. Please proceed with your question.
Good morning, good morning, guys.
Really appreciate all the.
Updates thanks for all the comments, particularly on the big step forward on strategic alternatives.
Just a quick one on activity levels.
You'd noted the guidance assumes sort of a return check activity levels reached and 19 by year end 2021.
I guess since you noted strong activity in March and in April versus 2019 should we think of that by year end 2021 assumption is.
From.
Our comfortable outlook that would get you towards the lower end or since you're already sort of seen activity levels in March and April.
Look towards that 19 should should we think of the the rest of the year goes as well as April and March has that there is potential upside to that comment.
Yeah. Thanks for the Christian interest and I think in terms of.
Guidance, what we're assuming is the recovery to 2019 flight activity levels.
By the end of the and importantly, also the patterns of demand that we've seen historically.
And what I mean by that is it's really geographic mix.
And and purpose of travel.
And so as part of that.
We are assuming that there's a transition.
From what we're saying at the environment, which is sort of leisure oriented trouble.
Towards those sort of historic patterns of demand, which obviously include a recovery in business oriented or business focused travel the return of events and the return of international travel. So as part of that we also are expecting a transition.
I think the other point Tonight is that.
And this is obviously part of the step up and guidance is that.
And that leisure oriented demand as we've pointed out has been has exceeded our expectations and desktop E. There's obviously a lot of discussion at the moment regarding pent up demand.
And for a lot of different things coming out of the pandemic and so we may see a continuation and.
And of that that leisure oriented demand through the summer, which which could be who could give rise to upside relative to.
The midpoint of guidance.
That's helpful and just.
A follow up I mean.
Clearly without discussing value directly.
You just noted that you're pleased with the level of bids you're seeing can you talk about XP.
Expectations as we think about your business should we see are there any major differences between.
Your business and some of your peers out there where there is a.
A clear and direct marker.
Net expectations.
First is that marker would be.
Meaningfully different.
Tristan I think you are asking us to speculate a little on the value of Atlantic, which I went too.
What I have to say is that we are pleased with the level of interest and I think that people would recognize that Atlantic is really a market, leading FBR and at work.
And he's very well place, we obviously have a great geographical and customer mix and I.
And that has been evident through the rapid and sustained recovery that we've seen.
It's got great exposure to the.
And the top U S General aviation markets.
I would also argue that it's exceptionally well placed.
To play a leadership role and the consolidation of the FBI sector, particularly after a change of control and the number one and number two players and.
And I think it also has the leadership team there.
Has this evening and you can track record in terms on.
Acquisitions and and and.
And I say.
And as a sort of say and I'm happy to see.
Restate, what I said on my third quarter earnings call, but I believe out of the three operating businesses Atlantic represents the most valuable.
We are pleased with the level of lead.
Just that we have in Atlanta, we are currently on the process, but it would be inappropriate to speculate as to what to what to sell value would be at this stage.
Appreciate it Chris and then just one last one from me.
You talk about the the tentative plan would be proceeds would be distributed via special distributions to unit holders.
If the plan is to have a sale.
Transact and upon in 2021 is it reasonable to expect that we could see a special distribution from M. I C. M IH as early as 2021.
Well, what I, what I would say decided that is and consistent with previous remarks, certainly it's my objective and expectation.
And we would be able to close the transaction and 2021 I will certainly be driving towards that outcome.
And without speaking for the board.
And my H and I see no reason why we wouldn't look to distribute the net proceeds.
And on a similar basis.
So what we did with IMTT.
That's great really helpful. Appreciate it. Thank you guys so much.
Thanks Kristen.
The next question is from T. J Schultz of RBC. Please proceed with your question.
Hey, good morning T J.
Hey, good morning.
And just going to stick on Atlantic and so as.
And you work through the sales process is 2019 cash.
Cash flow at least a starting point for the discussions or how do you kind of navigate this process when theres still some changes and travel patterns and what may be.
Smaller planes or smaller margins on that higher leisure travel and kind of driving activity now and I guess the on.
Known and still the return on these larger events business travel international travel and that would kind of lead to better margins.
And I think.
What I would say society is that the.
And.
Interested parties on potential buyers.
And going to take a long term view.
And with respect to the.
The prospects and performance of Atlantic Aviation.
And it's unlikely that they would be participating in a process, where they did not have high conviction regarding the recovery and general aviation and I think that the the the performance of Atlantic Aviation and since the second half of last year I think is is.
Ample evidence of the of the defensiveness and the strength of general aviation of and asset class.
And I don't want to sort of speculate as to.
What a potential purchases business plan looks like.
But I think in terms of the thesis that general aviation and.
He's going to recover.
Hum.
And now when we look at the the operational and financial performance of the business.
Okay understood.
And then just so unclear and the sale of Atlantic is that tax free or is there some tax leakage that we need to expect.
Okay.
No.
Sorry, and if you take it.
Yeah. So there.
There is no.
Corporate capital gains tax on the sale of Atlantic.
Assuming obviously that we have implemented.
The organization.
On unitholder.
Unitholders and M. A C H.
And it may be subject to.
Capital gains tax that will obviously depend on their on their own and circumstances, but the.
The key point, Okay objective and the reorganization is true.
To mitigate the corporate capital gains tax.
And I was talking about prices.
Okay perfect understood I'll just leave it there thank you.
Alright, Thanks T J.
The next question is from David Mccoll of Fort Washington Investment Advisors. Please proceed with your question.
Hey, good morning, guys, Hi, David Good morning.
Glad to hear the positive update on momentum for Atlantic regarding Hawaii, I know there were a lot of difficulties last year associated with getting.
And we're getting boots on the ground to do due diligence. So I'm curious if that's hampered your view of potentially closing that transaction in and 2021.
If that's a material concern at this point.
And it has access to Hawaii and proof or due diligence, assuming you know potential buyers aren't going down to check off the beach.
[laughter].
And David Thanks for the question.
As I said in my prepared remarks, our expectation is that we would complete a sale of M. I C. Hawaii true takeout of M. I H in 'twenty two.
And that timing reflects the fact that a sale of Hawaii gas will require the PUC approval for the change of control and consistent with my previous remarks, we anticipate that debt prices could take between six to 12 months or even longer.
And I certainly don't want to.
On behalf of the PUC and so as that is.
And what is conditioning, what I said in my previous remarks about.
2022.
What I also said is that we Arkansas.
Currently in process.
With respect to the sale and I see Hawaii.
Through the the the sales structure of the takeout and my age.
And we need to see how that process plays out.
But certainly the state opening up.
On a post October 15 last year.
Is being constructed for that.
Okay perfect. So we could see.
[noise] announcement, and 'twenty, one, but no transaction will close subject to regulators.
Yes.
And sort of speculate on on the timing, but certainly.
Our expectations and close the deal and 'twenty two.
Perfect Alright, Thank you all.
Thank you.
We have reached the end of the question and answer session and I will now I'll turn the call over to Christopher Frost for closing remarks.
Thank you for participating on our conference call today, I Hope you and your families remain safe and well, we look forward to engaging with you over the coming months and updating you on our progress at our next quarterly call or price of that circumstances, one with that I wish you good morning.
Thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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