Q4 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Call
Yeah.
Good morning, and thank you for standing by welcome to the fourth quarter 2021 fortress transportation and infrastructure investors LLC earnings Conference call. At this time all parties participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
I ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
I would like to hand, the conference over to your speaker today Alan Andretti. Please go ahead.
Thank you operator, I would like to welcome you all to the fortress transportation and infrastructure fourth quarter and full year 2021 earnings call. Joining me here today are Joe Adams, Our Chief Executive Officer, and Scott, Christopher Our Chief Financial Officer.
We have posted an investor presentation, and our press release on our website, which we encourage you to download if you have not already done so.
So please note that this call is open to the public in listen only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including Fad.
The reconciliation.
Of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.
Before I turn the call over to Joe I would like to point out that certain statements made today will be forward looking statements, including regarding future earnings.
Statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and Investor presentation regarding non-GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the SEC.
I would like to turn the call over to Joe.
Thank you Alan.
To start today I am pleased to announce our 27th dividend as a public company and our 40 <unk> consecutive dividend since inception the.
The dividend of <unk> 33 per share will be paid on March 23rd based on a shareholder record date of March 11.
Now, let's turn to the numbers.
The key metrics for us are adjusted EBITDA, and fad or funds available for distribution.
We ended the year strongly with adjusted EBITDA of $124 8 million in Q4 of 2021, which is up 29% compared to $96 4 million in Q3 2021.
170% compared to $46 2 million in Q4 2020.
In a similar fashion Fad was $120 1 million in Q4, 2021 up 205% compared to $39 4 million in Q3, 2021, and up 122% compared to $54 2 million in Q4 of 2020.
During the fourth quarter.
$20 1 million Fad number was comprised of $161 2 million from our aviation leasing portfolio.
11 <unk>.
<unk> zero million from our infrastructure business and negative $52 1 million from corporate and other.
Now, let's look at all of 2021 versus all of 2020.
Adjusted EBITDA was $336 3 million in 2021 up 38% versus $243 3 million in 2020.
Fad was $242 2 million in 2021 up 2% versus $237 4 million in 2020.
It is our aviation portfolio and infrastructure businesses contributed positive fad for the year and overall, 20% higher compared to 2020.
Meanwhile, corporate expenses were higher compared to 2020, primarily due to higher interest expense, resulting from higher average debt outstanding during the year.
Turning now to aviation aviation had another up quarter with Q4 EBITDA of $103 7 million.
While decreased flying due to omicron dampened the recovery and leasing activity, we were able to grow our aerospace services EBITDA to $20 3 million for Q4, primarily due to an increasing number of sales and exchanges through our CFM 56 module factory.
We had approximately 10 active customers in the module factory and are seeing growing interest in the products.
From MRO or maintenance and repair organizations airlines and lessors.
And with our recently signed program with Lufthansa technique covering the seven year Westjet CFM 56 engine maintenance program, we see growing validation and acceptance of the value proposition, which will expand the active customer base across the entire engine ecosystem.
Regarding aircraft and engine leasing we see increased demand for additional equipment, starting in Q2, driving higher lease rates and asset prices provided that strong forward travel bookings that we have today hold up.
Overall, we see improving demand for assets and aftermarket maintenance services, driving 2022 financial performance and strengthening our position in the commercial jet engine aftermarket.
Now, let's turn to infrastructure.
Jefferson The Big story with Jefferson in 2021 was major advancements on multiple product fronts with the two largest refineries in the United States.
Our largest customers motiva and Exxon we.
We started the year with refined products by rail and added a 10 year contract to operate a 2 million barrel multi product in refined products export hub.
And on the crude side, we've been receiving shipped cargos, which we store blend and move now by pipe.
And we see a good pickup in crude by rail from Utah, and Canada, which brings additional services and values to the terminal.
We are actively exploring multiple additional products for both refiners, which we expect to add in 2022 and at least one new pipeline connection as well.
<unk> throughput volumes were up over 25% in early 2022 versus Q4 2021, we still are only about 33% utilized but with additional activity from Exxon and Motiva, we have a path to high utilization coming into focus.
Rubano.
<unk> had a terrific year in 2021 and is very well positioned for many years of significant growth.
First let me list the 2021 accomplishments.
One in the first year of operation, we loaded 31 ships with butane for export.
Second we imported our first cargo of polymer grade propylene.
That has come to the east coast in many years.
Third we began construction of a double unit train rail loop.
Fourth we expanded the truck rack, which will allow direct rail to truck propane trans loading.
Fifth we operated a new caverns, shiller, which allows us for refrigerated LPG marine loading.
And sixth we completed a new bypass road, providing direct highway truck access.
In terms of volumes in 2020, we moved $4 3 million gallons through the terminal.
In 2021, we moved a 130 million gallons and in 2022, we expect to move 150 to 175 million gallons.
And then 2023 with an additional cryogenic tank, we plan to build that number could triple.
Part of it was finding its niche with customers to offer unique capabilities for storing and trans loading a wide variety of liquid petroleum products and intermediate specialty chemicals for both import and export and a critically important an advantaged location.
As such we see upside over time in this terminal fee per gallon potential.
Lastly, we've made significant progress on the clean planet joint venture and have begun the permitting process for the first plastics recycling plant at Ricardo which we expect to commence construction on in Q2 of 2022 and complete in Q2 of 2023.
Yeah.
Turning to long range long ridge had a good quarter and year due to an earlier than planned startup of the power plant, which allowed us to take advantage of elevated power prices in October and November before our long term power sales agreements commenced.
On a 100% basis long ridge generated EBITDA of $37 $4 million in Q4, and $58 8 million for all of 2021, well ahead of our budget.
Starting in January and up until last week long Ridge took an unscheduled maintenance outage fully covered by G E warranty for repairs to the steam turbine.
The outage will reduce EBITDA in Q1 due to the loss of power revenue. We did however perform maintenance scheduled for later in the year, thus avoiding future outages and we completed the hydrogen blending project, giving us the capability to become the first large frame power plant to be able to utilize zero carbon hydrogen.
As a fuel.
Under the recently enacted infrastructure Bill the U S government will be designated for locations as hydrogen hubs long ridge is ideally qualified and we intend to apply for one of those.
We also are in the final stages of negotiating to host a new biodegradable plastics manufacturer at long Ridge.
As part of that agreement, we would provide land power and natural gas under long term supply agreements.
Turning to Transtar Transtar generated $16 7 million of adjusted EBITDA in the fourth quarter from continuing operations and for the full year generated an annualized $68 million of adjusted EBITDA.
In addition, transtar generated $4 5 million of incremental cash flow from the sale of non core equipment and excess land, which was more than offset maintenance capex in the quarter.
This is a collection of railroads that have very low maintenance capex and industry, leading cash conversion, which we expect to continue in 2022.
In the fourth quarter Transtar moved more than 55000 carloads slightly above fourth quarter of 2020.
As steel production at Gary and Mon Valley remains stable despite supply chain downstream issues in the automotive and appliance sectors. Some loaded steel carloads in December were held at the origin until cars are offloaded downstream, but are expected to move in Q1 and Q2.
This theme is carrying forward early in the first quarter of 2022, but we expect to see increased steel movements in Q2 and beyond as pent up demand is released and the supply chain Rationalises.
Looking forward to 2022 Transtar goal is to grow its third party businesses at the underutilized railroads. The team is executing on new trans loading opportunities in Detroit and exploring large industrial customers for its thousand acre property in northeast, Texas is non car.
Noncore railcars or sold more than 1500 storage thoughts are opening up across the network and the team has a pipeline of opportunities to fill those vacancies spots.
We're pleased to welcome Gary long to the team as CEO of F ties rail investments Gary brings more than 25 years of experience in the rail industry, including most recently as CEO of Genesee <unk> Wyoming's European operations, Gary is very well suited to leverage the transtar platform to execute on the growth initiatives, we have set forth.
Both organically and through acquisitions.
In summary, we're very much looking forward to 2022 with aviation recovery, gaining momentum accompanied with our advances in aerospace service revenues and EBITDA.
And in infrastructure, the maturation of multiple projects, which now generate organic growth across all the platforms.
And finally, the spin off of infrastructure is moving ahead with expected completion in April which will provide simplification of the business strategy combined with eliminate eliminating K ones for investors.
So with that I'll turn the call back to Allen. Thank you Joe Operator, you May now open the call to Q&A.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
First question comes from Justin Long with Stephens. Your line is open.
Thanks, and good morning.
Maybe to start I was just curious if anything has changed in terms of your EBITDA outlook by business for 2022, and then thinking about the longer term I know you've spoken recently about the aviation business getting to 1 billion of EBITDA by 2025, given the split is on the.
Term horizon is there anything you can share around some of your longer term targets for the infrastructure businesses as well.
Yeah. So.
So yeah on the EBITDA for 2022.
Well, we've been saying is that it's our best guesstimate or estimate is about $550 million for aviation.
And and then you know with each one of the.
Our infrastructure business. So I'll go down that the Jefferson, we're looking at between 50 and 90 million of EBITDA.
<unk>.
For long ridge our share.
Roughly the total EBITDA is probably around 90 million given the you know the first quarter is going to be short. So our share is roughly about 45 million of EBITDA.
Then.
I know, it's probably about 10.
And transtar approximately 75, maybe 80 75 is probably a good number.
Is that.
That's great and then I guess longer term for the infrastructure businesses.
Yes, so we've.
We still believe Jefferson.
As I said it was roughly a third utilized.
Count on the fact that Exxon is about to go next year or two you know from 360006 hundred 20000 barrels a day in Motiva is that today, that's the number one and two.
Fighters and we have multiple discussions we have a bigger list of new product offerings to each of them that we've ever had before given the pipeline connectivity. So we very much believe will fill the terminal and if you feel the terminal youre looking at 150 million or more of EBITDA per annum.
So that's something that.
We've always said, it's a question of when not if and you know we've had obviously a number of headwinds and things that.
The world seems to throw obstacles up you know regularly now, but we seem to be able to jump higher each time. So we're.
Managing them, but.
But the terminal is very well positioned has a great product offering.
Great dialogue and relationships with those two customers and now we have the benefit of a higher oil price, which should all of that should help. So so we're still we still believe that that will fill up.
In terms of Transtar, what I've sort of indicated to people is if if we bought a business that from U S. Steel is generating roughly $80 million of EBITDA, which we can grow right of way and storage business in trans load and add maybe $15 million to $20 million.
There are three or four years from that those types of activities. So you say you get it to 100 million what we'd like to do is add 100 million from non U S steel customers across.
A range of activities being you know could be industrial development at one of the four railroads that we were basically given as part of the transaction. It could also be growing segments like repair and maintenance activities.
Activities terminal operations is another one that we've been looking at so there's a there's a list of things that we're going to explore to try to sort of figure out how to create that $100 million, but if we were able to do that you know I think that 100 million from a long term customer such as <unk>.
S steel.
We've got great downside protection is it's very stable and then have $100 million of third party business from other non U S steel customers.
Really good economic and industrial backdrop in the U S. Today that would be a great company and great you know a much higher multiple than what we paid going in so that's kind of the business plan there.
<unk> is another one that I think is amazing in that it was.
Really there are there are only two terminals on the east coast of United States that can handle these types of natural gas liquids.
And really the other one is piped to ship primarily so we have we have rail we have truck and we have import and export capabilities, which really is we're starting to find from the customer reaction as you know people have been saying God I've been looking for this for years.
Finally found it you know we can bring in products like butadiene, which I didn't even know how to spell. It you know a quarter ago. So it was it's there's things that we're learning about the location and the capabilities that are very exciting, but just the natural gas liquids business as I mentioned you know.
We probably will get a long term commitment and build a above ground storage tank, which would be in service next year.
And that would give us triple the capacity we have today.
And and really allow us to load Vlccs, which puts you into the right. The ratable business of supplying PVH plants in Europe of natural gas liquid products. So that's a big jump and then beyond that we.
You have the ability to build probably three to 4 million barrels of underground storage, which we could set up in multiple caverns to handle all these different products that I just mentioned.
So.
And it could be important in exports. So that's truly unique and it's also it's not on the Gulf Coast, which is a big advantage for many buyers so and that doesn't count. The 200 acres, we have above ground and it has nothing you know filter on it we'll probably use 10 acres for this clean planet joint venture. So there's other.
Real development that we can do there. So just you know.
An amazing property with lots of special.
Special attributes that I think it's and scarcity value that you know nobody can replicate so I've always felt that when it was.
Truly unique and extremely valuable.
Then on long Ridge, we have the power plant contracted for the next eight and a half years. So really the main upside is two things one is bringing.
Bringing a tenant to the property so that we can add additional services such as selling gas and we can sell power at a higher price so that.
And I think we're going to you know we have a good shot at and one or two I mentioned, the one on the biodegradable plastics, which we're pretty far along on the an ideal tenant because they use natural gas microbes in electricity, which we can we don't supply the microbes, but we supply the other two so it's and its E. ESG positive you know.
Turning to bring out onto the site. So so that I think is would be a good development and then and then the other one I mentioned is the hydrogen we know they are the first power plant that can blend hydrogen and use it as a fuel large frame how were planning and when you look at the specs or the hydrogen hub that the government just published.
Published one of them is.
One.
One of the hubs has to be in a large gas producing region and have a proximity to a powerpoint.
And so I can't we can't think of like who else would that fit you know we have a power plant on the property and theres gas underneath us all well.
In a radius of like 100 miles as Utica.
So so we're very excited about that don't know how to quantify what that means but it sounds great to be a hydrogen hub and you know it doesn't cost anything so why not.
So that was kind of a.
Sure of.
If that gives.
It gives you what you were looking for.
That's great and I appreciate all that detail and I'll keep my follow up to a quick one on earlier you mentioned 550 million from aviation. This year is does that include the 50 to 100 million that you've talked about from aerospace services.
Yes, okay.
Okay.
Great I appreciate the time.
Thanks.
Thank you. Our next question comes from Devin Ryan with JMP Securities. Your line is open.
Hi, Thanks. This is Brian Mckenna for Devin. So just look at aviation EBITDA returns I know there was some timing dynamics in the fourth quarter, but returns declined sequentially to 16% from 20%.
In the third quarter. So could you talk about the outlook for returns in the business at 16% the floor in the near term and then what do you see as some of the bigger driver drivers of getting returns back to the mid 20% level over time.
We think that as I mentioned omicron slowed down a lot of expansion activity in and.
And we see it and in.
Like if an airline was flying in pre Covid era.
<unk> 350 to 400 hours a month on an airplane.
In the fourth quarter, they might have flown 200, and so that affects our revenue from maintenance and maintenance reserves that we take in so that's that was an impact to the fourth quarter. So it was not from that point of view. It was not a great quarter given that we were hoping that you know people are going to for the.
As you know add capacity and fly and unfortunately omicron changed the trajectory of a lot of that.
But as I mentioned and then the first quarter is better we accept expect sequentially better, but it's not going to it's never seasonally the greatest quarter, because you know the winter months or not.
The busiest for air travel it really starts to pick up the scheduling in March and April . So our expectation is that Q2, and Q3 will return to the our targeted EBITDA margin of 25% or close to that and we have a pretty good reasonable visibility on that as I said, it's a function of.
The airlines are seeing right now pretty strong forward bookings of flights and so we're getting requests says our other people I'm sure for additional assets and so the best sign that you can have is when an airline calls up and says I need more aircraft.
Does there they're the ones that have the best view on whats happening on the travel side and that's that's what's happening right.
Right now so so we see it.
And I've also monitor the other maintenance shops are talking about being sold out in Q2, and Q3 and one of the Big engine manufacturers, just said, they're seeing or you know returned to <unk>.
Pre COVID-19 levels by the end of this year. So there's a lot of other corroborating data that supports that.
So that's our that's.
That's our outlook, that's our expectation for it to get to the levels that we just talked about.
Great I appreciate that and then you also sold a number of noncore aviation assets in the quarter can be lumpy, but how should we how should we think about related asset sales moving forward.
Some level of sales necessary to fund the pipeline of allies or do you have ample liquidity and cash flow generation in the business to fund these investments throughout 2022.
Yeah, we.
We have been talking.
Talking about and we actually did.
Take a step towards.
Shifting the mix of the portfolio somewhat and that we expect I think we had like 100, Pratt 4000, and see a 680 engines and over time.
Somewhat over this year, we'll probably reduce that number down.
Maybe by half so we had about 10 million in gains from those types of sales in the fourth quarter, we will see more of that this year I think as well and at the same time, we're looking to increase the percentage of the portfolio and the CFM 56 engine, so that which obviously makes sense. That's what we've been talking about it for five years, so where we're.
We're going to shift the mix and I think that those assets. The Pratt 4680 as had been great returns for us and and we have very low basis, so and there's a lot of demand given the freight market. So I think we will continue to see some gains from those during the year.
And then in and then in terms of managing capital going forward I think we're gonna try to two.
Turning to portfolio more in and and have asset sales.
Replenish you know new investments so one of the things you can do as they.
We're focused on right now as we if we buy off lease assets and then put them on lease you create a quite a bit of value in and could take a gain.
And as part of that we're also looking at.
The potential to sell some of those assets that are on longer term leases and retain the engine management of that of those assets, which really is a great is a win win and it opens the lessor market up to the whole.
Ecosystem, if we can sell in.
Our long term six to eight year lease book, a gain and then keep when we think its the best part of the deal which is the engines engine maintenance contract.
That's another value for us.
That no one else can recognize and it allows us to use that capital again to.
So it's sort of do it all over again, so that's sort of a long way of saying that we have we have liquidity. We don't think we're gonna be expanding the invested capital dramatically and we're not trying to do that we're trying to grow that service component.
So that you know in the <unk>.
Someday in the future, we hope that service Aerospace services revenue EBITDA is equal to leasing activity EBITDA.
Great. Thanks, Joe.
Yes.
Thank you and as a reminder, if you would like to ask a question press. The Star then the one key on your Touchtone telephone.
Our next question comes from Giuliano.
<unk> with Compass point your line is open.
Good morning.
Okay.
Switching.
So a little bit.
Reported that you generated $20 3 million.
Aerospace services EBITDA in the quarter.
And I want to make sure I was thinking about this correctly.
The components of that is most of the selling new service serviceable material.
Proceeds from the module factory.
And if I look at if I think back to kind of prior statements.
Joe if you reference selling about or generate about 20 million of EBITDA for your service old materials, which would imply roughly speaking 5 million a quarter.
If I back into that number that implies that the module factories, probably running 15 million plus comfortably higher than that or a larger contribution of the 'twenty, which already put you at a $60 million or so of annualized run rate.
A good way of thinking of it and is that kind of a ballpark of where the module factories running.
It's close, but it's a little bit different than in the fourth quarter. Most of that 20 million was from the module factory more than more than 80% of it was module factories. So the U S. M was was probably you know.
Under $3 million between two and $3 million of contribution in Q4.
We do expect $20 million of from U S. M. This year in 2022, but again U S. M is driven primarily off of shop visits so.
In the fourth quarter and first quarter Theres still are.
A limited number of shop visits are occurring but if you look at what the like again to you just announced the other day, they're sold out now for Q2 and Q3 and in the shop. So.
It's it's happening that the shop. The engine Green time has been burned off and people are going to need to put their engines to the shops.
Right.
That will drive U S M sales as activity on the shop visit side, which which will be more backend loaded than than what the number its not 5 million a quarter. It will ramp up to you know something but.
But we still believe $20 million is a good estimate for the year.
That's great I'm thinking about.
A little more accounting specific but the module factory EBITDA and proceeds and also the use of a material is it.
Am I correct in assuming that both of those flow through gain on sale because obviously.
A large gain on sale or profit quarter.
To make sure that you know those are both long term gain on sale because that's really more recurring business moving from the module factory in Pennsylvania serves the once aerial versus onetime.
Well.
Right now we have a bit of it.
The module factory is flowing through gain on sale, but U S. M is being booked as revenues and costs minus cost of goods sales. So we have a different treatment, which is probably not great from you know long term, we need to spend some time and see if we can.
Get that right, but it it's because it's so new we you know the accountants wanted to have it classified differently right now but.
That's not something I can totally understand but that is that's what we did in the fourth quarter.
Oh, great that's very helpful.
One thing I was curious if there's any update on that.
The second PMA part or pencil approval time line there.
Yes.
Very good progress on the part of <unk>.
They then they're very happy with it it's performing well.
A lot of back and forth on information and it's.
It's progressing and we're hopeful that that will be.
Addressed soon but it's it's as you know, it's very hard to put a specific date on it so but good progress.
That's fair.
The only other thing is on Jefferson.
It isn't here.
All participants are moving around and I'm sure most of us.
I'm curious about.
For dial up you know crude by rail and I try to think about potential.
Central contribution there from crude by rail or how that contributes into your kind of 50 to 90 million guidance.
Yes, it's one of the products that we hope will come through this year, which is you know there are several proposals out now and it does help with crude prices high because it was more spread in more volatility creates what the refiners are always looking at is optionality there trying to source the lowest cost crude from wherever.
That comes from an and volatility and high prices help. So we just we do see the likelihood of that act.
Activity, we've already seen it coming from the Utah market, which is it's.
It's not a spread business because in Utah Theres no theres no other way to move it. So it has to go by rail, but in Canada. It is a spread and supply business and so that that market will.
It should open up.
That's great. Thank you pride from our preference and I'll jump back in the queue. Thanks.
Thanks.
Thank you. Our next question comes from Josh Sullivan with the Benchmark Company. Your line is open.
Hey, good morning.
Good morning.
I've given them to do the kinds of relationship how do we frame your overall module capacity at this point.
One of the advantages of the module factory Pittsburgh faster turnarounds for airline maintenance could you give us any metrics. There customers are some of them are field on turns at this point.
Yes, so that's a great one and.
So if you if you think about the lift tied to the deal. We just we supply a N a.
<unk> overhauled L. P T low pressure turbine to Lufthansa, which gets.
<unk> installed in the West jet engine, when they're doing the shop visit so the time that it doesn't have to do any of the maintenance on that and it is immediate.
We can install that in 30 days rather than you don't have to wait for any parts and and have any delays. So there's a benefit to them on that and there's also a benefit just purely for an airline.
If you need an L. P T and it has to go into the shop it could be anywhere from three to six months and so we have a little chart that shows the.
The total savings from using the module factory could be just time.
Time wise could be a half a million dollars or more and we don't charge for that so that's just a you know that's that's it.
Did benefit.
Got it and I think that that those numbers are going to get bigger to as you see the shop start to build up to.
To fill up and then you factor on top of that what we haven't yet seen is supply chain.
In aviation components, but it's coming.
It's happened in every other industry and the only reason it didn't happen in aviation is because there wasn't a lot of activity, but it's it's definitely coming in so as you see.
Engine shop visits start to go back out to you know four to six to eight months, which is what happened pre COVID-19 .
Then the module factory benefits become even greater.
So we're very and then on top of that I think you also have some inflation potential that hasn't you know you see the Oems raised prices last year, 7%, which is amazing given the state of the financial condition their client bases in but theyre able to raise prices.
And that environment, 7%, what would they do if they have like 7% inflation. So that actually is also another benefit for us on the on us on our side so.
So.
So those those are both factors in terms of capacity.
We use about at the Montreal facility of Lockheed Martin, It's about 300000 square feet, we're using about 40 or 50000 of those today and there's plenty of room to open that up.
So we are we have we have plenty of capacity there and.
You know every engine that we induct into that facility, we we break it into modules. So as soon as it comes in it's separated as a fan of core and a low pressure turbines. So.
So the we always have inventory available is my point and I think we can manage that very effectively to ramp that up if we if we needed to.
Expand the logical place for us to add additional capacity would be to Europe , where we've looked at a couple of opportunities, but we don't need a mill at the moment, but.
Instead of having a flight engines across the Atlantic that would make sense for us for future a future expansion. So so really the module factory is has the ability as I mentioned to expand geometrically.
This is a huge huge engine market.
That if we get a small percentage of that.
Available business, it's a it's an enormous amount to us and a small impact on the overall market.
Got it and then what the split is complete as far as reporting metrics between the two entities are you still going to be reporting that are reoccurring set or the aviation assets.
And then how are you looking at the dividend and capital allocation between the two.
Yes, so fad is probably on the list of things to think about it is it's probably lost some of its relevance and meaningfulness. So.
We will address that I think at the spend but it's one of the things that we may not may not be doing going forward.
So.
And then in terms of capital allocation as I mentioned.
The plan is to its.
It's not necessarily every quarter to try to grow the $2 billion invested capital in aviation, but to turn it more frequently and to shift more towards the CFM 56 engine. So so given that there.
There should be.
The EBITDA contribution.
And we were looking at there should be.
Available cash flow to either pay down debt or increase the dividend and if there's if that comes to happen as we expect and you know we could do both of those.
Got it and then just one last one on Jefferson how does the EBITDA generation work relative to utilization.
The percent or 75% of utilization how does that relate to the per annum EBITDA figure you provided.
Well, it's it's highly levered because you know the first 25% you don't you cover your fixed costs.
After that it's it's highly levered and so and incrementally.
It has to do with.
Certain products have a higher contribution like crude by rail is probably our highest contributing.
Contributing as it because not only do you get the highest fee for unloading the the railcars, but then typically you're blending it you know two to one or 301 with some blend stock that you also bring in by pipe in store and then charge of blending fee and then it goes out by pipe. So that's that's our number one product in terms of <unk>.
Contribution but ever ever.
If you were able to utilize types the obvious benefit there as you can ramp up volume and there's almost no incremental expense.
It's purely it's already there so so they each have their own differences, but it's so it's not a linear and you know I can't.
Just give you one number it'll it'll partly.
Depend on the mix, but they're all positive contributions.
Thank you for the time.
Thanks.
Thank you. Our next question comes from Chris Wetherbee with Citi. Your line is open.
Hey, Thanks, good morning, guys.
Joe I was hoping maybe you could help us with the Jefferson Bridge some sitting here looking at the last half of the year you.
No running around $2 million of quarterly adjusted EBITDA I know, we have a target for 50 to 90 work couple of months into the year. So can you give us either some near term visibility on sort of what youre seeing in terms of the ramp up or how do we bridge this pretty substantial step up.
Well, it's just it's it's exactly what I was just saying that it's higher utilization and higher volumes. So we have multiple projects underway.
Crude fuel fuel coming in by ship going out by type additional crude by rail activity from.
And from Exxon now it is.
Additional.
Refined products activity. So it's really just it's.
It's just what I was talking about it's additional volume that.
We've seen some of that increase in Q1.
But we expect to see more of it to you know during the year.
So can you give us some maybe some near term numbers I mean, what does Q1 sort of look like as it contributes to that full year number.
Well I did indicate the volumes in Q1 were up.
25 per cent roughly over Q4.
Okay. So we could use that as a benchmark okay. That's super helpful. I appreciate the time. Thank you.
Yes.
Thank you as a reminder, if you would like to ask a question press. The Star then the one key on your Touchtone telephone.
Our next question comes from Robert Dodd with Raymond James Your line is open.
Hi, guys I've a question on the dividend.
Obviously in the past you've said.
To X coverage.
Dividend coverage quite that bad sounds like it's becoming a less useful there's a lot of macro geopolitical uncertainty and already see a spin.
Oh separation come in in April . So is is that how we should think about it is still on a combined basis. So can you give us an outlook on on what metrics or what expectations should be for potential combined or separate business.
And growth.
So we we.
Spec with the spin roughly 75% of the current dividend will be paid by aviation and 25% by infrastructure.
So that's how the new combined.
Combined two shares would would be treated from a would be split relative to the dividend. The current dividend in terms of increasing the dividend as I mentioned with aviation.
We expect probably to grow the asset base are probably less and grow the EBITDA more which means you'll have more free cash flow, which would allow us to potentially increase the dividend.
One of the alternatives for that excess capital. So that's that's something that you know.
We could do we didn't we didn't want to do it pre spin because there's too many other things going on obviously and there's a lot of different there's the world. You know it was we've got a big project to get done with that and then then we'll look at it.
In terms of infrastructure, it's a little hard for me because it's gonna be a.
Capital allocation discussion around growing that dividend relative to the investment opportunities that we would see in front of us and so that would be something I would anticipate.
No I'm talking more about that.
After the spin once we get out and have visibility on on the.
Capital opportunities for new projects.
I appreciate that thank you and if I kind of want one. So obviously I mean, you've said use a visible material and all the things that are driven more by shop, because it may be more backend loaded.
Is that also true with the module factory or does that.
Then it's seasonal seasonal this year more backend loaded and is that kind of a normal seasonality or is that just a kind.
Kind of a COVID-19 with seasonality that produces that back end loaded.
Certainly the U S.
Well for U S. M is really COVID-19 related because you know when Covid started the the number of shop visits dropped as we've talked about before airlines did not want to put engines through a major overhaul when they had excess engines in the fleet. So first thing. They do is use up the excess hours and cycles.
That's happened now and now that you have a recovery then people are going to all of a sudden say Oh, my God I'm out of engines and I got to put them through the shops. So that's that's what you're seeing with <unk>.
People, saying that the shops are selling out for Q2, and Q3 and so it's really that U S. M.
Function is much more COVID-19 related and seasonally related and actually historically a lot of maintenance is done in Q1, because that's the slowest you know flying season, it's like the yellow flag in the car race. You know you can go into the shop. When you when everyone else is slowing down so it's <unk> it's <unk>.
Not seasonal from that point of view.
And then module factory I don't anticipate a lot of seasonality there again, it's a it's a year round activity. So I don't it's not it's not specifically tied to flying.
And we did have a strong Q4, we've got obviously, we put the number out we don't know exactly.
We don't have enough history and data to say exactly how it's going to roll out and it's a relatively new product. So I can't I can't guarantee that it's going to be like a steadily increasing number every quarter, which you know everyone would want and I would want but we.
We don't have enough information yet to be able to say that but obviously, we put it out there. So we have some reasonable expectation in a number of customers that are that are using it is going to is going to increase so.
So that's that's good and I don't you know I don't think it's going to be highly seasonal.
Thank you.
Thank you.
Thank you I'm showing no further questions at this time I'd like to turn the call back to Alan.
Alan Andreini for closing comments.
Thank you all for participating in today's conference call. We look forward to updating you after Q1.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Yeah.
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