Q1 2021 CorEnergy Infrastructure Trust Inc Earnings Call

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Greetings and welcome to the core energy first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.

And and answer session will follow the formal presentation.

For anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is recorded and I'll now turn the conference over to Yahoo, Mad grips from Investor Relations you may begin.

Thank you and thank you everyone for joining today's core energy infrastructure Trust Conference call with me today are Dave Schulte, CEO, John Greer, CFO, and Robert Waldron, and CFO also joining us Chris from ICR, Chief Accounting officer. So those of you joining by telephone and yesterday after the market closed we published.

A press release announcing first quarter results and outlook for 2021, we have also published a slide deck to accompany today's call, which is available online at the Investor Relations section of core energy not right. You can also access a webcast replay on the site typically opposed to within a couple of hours of live calls and.

And I'd like to remind everyone that the statements made during the course of this presentation are not purely historical may be forward looking statements and are subject to the safe Harbor protection available under the applicable securities laws and important factors that could cause actual results to differ materially from those and the forward looking statements for discussed in our filings with the SEC.

And on the Investor Relations section of our website, we do not update on our forward looking statements.

During this call we will make reference to certain forward looking non-GAAP metrics with the <unk>.

Reconciled and subsequent filings and a part of our results reported well.

We'll make additional disclosures with the SEC, including but not limited to 8-K filed with respect to the Crimson transaction and our proxy statement. We encourage all of you to review our complete disclosures risk factors GAAP numbers and those non-GAAP metrics with related reconciliations and with that I would like to now turn the call over to Dave Schulte <unk>. Please go ahead.

Thanks, Matt and the first quarter core energy established a new foundation of critical infrastructure assets on which we can build a significant platform or.

Our legacy natural gas transmission and distribution assets and our new Crimson midstream crude oil pipelines have decades of history, serving diverse credit worthy customers with regulated service models our.

Our customers on the commodities being stored or transported on our networks, while our role is to provide reliable delivery of these products.

Its basic business model is the basis for our qualification as a tax efficient real estate investment Trust.

And we have a large addressable market opportunity, having created a combination of desirable attributes, which are new to the industry segment and which we operate.

And the fundamental building blocks for our future for created on both sides of our balance sheet.

We also established solid coverage of our debt and preferred obligations, we established a baseline of dividend coverage for our common stockholders and we have a path to growing that dividend to our targeted range from visible commercial activities.

And management of both Crimson and our management company, a rolling equity for our ownership stakes for a significant amount of that equity.

Upon stockholder approval will be subordinated to our shareholders' common stock, which provides a cushion for the dividend to our common holders. This places the execution risk on the insiders are received shares as consideration and the purchase agreements and who collectively will own a substantial share of our equity.

The management teams have decades of history, operating our assets and have confidence and our ability to execute our strategy.

And turning to slide five the majority.

Our revenue is now derived from regulated assets under cost of service model that enhances long term predictability.

We believe the increased clarity around our cash flows will support proactively de levering the balance sheet.

Core energy is now reviewing a number of potential opportunities to expand within our footprint as well as to diversify our entire platform.

And finally, we are evaluating our real potential role and the long term energy transition that is now underway and the United States.

With that I'll turn the call over to Robert to review our financials.

Thanks, Dave first quarter 2020. One is the first time Crimson is included in the core financials. However, only two months are included and the results were reported to date since February one was the effective date of the transaction.

And you can see on slide six.

We had adjusted EBITDA of $8 1 million cash available for distribution of negative $4 3 million and maintenance Capex of one 4 million and Q1.

The cash available for distribution includes $6 1 million and onetime transaction expenses and apart from the effects of the transaction expenses. The cash available for distribution was $1 8 million for the quarter.

You might notice we are focusing on two metrics here adjusted EBITDA and cash or cash available for distribution. These are non-GAAP measures and reconciliations of these numbers to net income or loss and cash used for operating activities.

<unk> provided and the earnings release, the slides accompanying this call and the 10-Q.

We believe these figures help assess the operational and cash performance of our business by excluding noncash items that are part of the GAAP accounting metrics. We report as part of our quarterly results.

And we'll continue to report the standard REIT measurements, including NAREIT <unk>, but these measures subtract noncontrolling interest. So we do not highlight them as representative of our operational and cash performance metrics.

Adjusted EBITDA and presented is intended to measure.

And to be a measure of operating performance of our business without regard to financing method our capital structure.

Cash is intended to be a measure of cash generated the cash generated and ability of our business after servicing our debt and preferred equity there.

And the remaining cash is available for dividends and voluntary debt repayment and stock buybacks funding of growth Capex and other needs as deemed appropriate by the company.

When using cash it is helpful to take into account and special items, such as transaction expenses, which are included in our definition of cash.

The last item I wanted to touch on and the financial results as maintenance Capex and capital.

Our maintenance capital expenditures generally do not do not occur evenly throughout the year. So any given quarterly number may not be may not provide a good estimate of our annual expenditure when annualized.

The graph on the bottom right of slide six is the historical quarterly average daily crude oil volume, which is entirely from our Crimson operations.

On average in Q1, we transported approximately 198000 barrels for our customers on a daily basis.

And you can see the disruptions of 2020 on both sides of our pipeline resulted in lower volumes and we have yet to see the effects of higher crude oil prices on production as that tends to lag.

Shifting to dividend the company declared dividends on its preferred aid.

For series preferred a and also <unk> <unk> per share on its common stock unchanged from previous quarters. The company expects all dividends paid in 2021 to be characterized as a return of capital.

Distributions were also declared on class a class one and class two units, which are the newly issued securities as part of the Crimson transaction. These securities receive distributions equivalent to the dividends declared on core series C and core series B preferred respectively and <unk>.

And if they were outstanding these distributions represent the period from April one to May 31, since and since they are paid current on the payment date.

Distributions were not declared on the newly issued eight three units, which were also issued and the Crimson transaction as they only started accruing distributions on may one and they will be entitled to distributions equal to dividends declared on the cloud on the class B common stock.

So their first potential distribution will be in August for Q2.

And as they as Dave noted these are subordinated to our common equity, placing the first line of execution risk.

On insiders and providing what we believe should be greater confidence and the payment of common dividends.

At present and the board has indicated an intention to pay the <unk> in time, and all other distributions and dividends and cash.

For reference pages, 57% and 58 of our 10-Q and provide additional details on our capital and our current capital structure and what our capital structure and share count looks like on a fully converted basis. This information is also provided in the slides accompanying this call.

Slide seven covers our outlook, which remains the same as previous was previously disclosed except for an adjustment to timing to align to the pace of economic recovery and California, we expect to reach our targeted annualized numbers in the second half of 2021, including and annualized adjusted EBITDA.

Run rate of $50 million to $52 million.

That level of adjusted EBITDA provides approximately 175 times dividend coverage on both common stock and class B, assuming full conversion of the series B preferred to class B common stock, which does require shareholder approval.

In order to achieve our target dividend of 35 to <unk> 40 per share we needed an additional $5 million of cash available for distribution above the annualized outlook mentioned.

We believe that it is possible through a combination of returned to pre COVID-19 conditions.

Organic growth opportunities and Crimson and transaction synergies.

At this time, we will take a few questions from our covering analysts or institutional stockholders before closing the call. If you have additional questions or follow up needs not addressed on today's call. Please reach out to our investor relations team and they will make necessary arrangements. Operator will you. Please provide instructions for Q&A. Thank you.

Sure at this time and will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is and the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

One moment, please and while we pull for questions.

Yeah.

And our first question is from Selman <unk>.

<unk> with Stifel. Please proceed with your question.

Thank you good afternoon.

So.

In terms of thinking about future acquisitions, and you've highlighted crimson and and sort of what the cost of service models highly predictable cash flow should we be thinking that's what you're looking for going forward or is it much wider than that.

This is John Greer and the short answer to that is we're working on both of those so there are there are regulatory issues that we can do that will be helpful for our company.

And where we've got.

I'll say a number of acquisitions that we're currently looking at.

Some of which are in our area and are generally accretive to the assets, we already own and some of our some of them are in different locations, but we've got it.

And number of core.

Companies and asset groups that we're looking at.

Got it and then as I look at sort of the.

198.

<unk> thousand barrels per day for the quarter is there any cadence you might be able to break out January February March.

And then maybe where how things April April shaking out or is it still kind of a decline line.

Because I know you also said oil production lags and I and the other question I guess I would have then is how long is that lag before we sort of see and upturn.

That's a good question and it's a it's a it's a predicted sort of question that I can't fully address it here as we get some.

Some discussions among people in our company about future volumes.

There are some that were moved.

And to the P 66, we think they are coming back.

But it's pretty difficult for me to address exactly what I think is going to happen and the future.

But no reason to believe that there is any negative consequence.

For our company.

Okay, and then is I recall, maybe initially you go in and once a year for a rate case to adjust rates for cost of service.

When does that happen.

Generally in the summer, but thats all ill just say among management right now it is under consideration.

Even as we speak.

Okay. Thank you very much.

Okay.

And again as a reminder, if anyone has any questions you May press star one on your telephone keypad go on and so on ensuring that you join the question and answer queue.

Okay.

Hi.

Okay.

Gotcha.

Sure.

Hi, Julien.

Okay.

And again, if anyone has any questions you May press star one on your telephone keypad.

Okay.

Operator, if that's all while we thank everyone for joining us today and as a reminder, if you'd like to meet with one of US said and upcoming Investor conference event or have a direct and one on one call Youre welcome to contact our IR team will be happy to take care of and thanks for everyone and have a great afternoon.

Thank you everyone. This concludes today's conference and you may disconnect. Your lines at this time. Thank you.

And you for your participation.

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