Q1 2023 FTAI Infrastructure Inc Earnings Call
Speaker 1: You.
Speaker 1: I'll see you next time.
Speaker 2: Hello, thank you for standing by and welcome to FTAI Infrastructure Q1 2023 Earnings Conference call.
Speaker 2: At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this time, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker 2: To withdraw your question, please press star 1-1 again.
Speaker 2: I will now like to hand the conference over to you speaker Alan and you may begin sir.
Speaker 3: Thank you, Tawanda. I would like to welcome you all to the FTI Infrastructure first quarter 2023 earnings call. Joining me here today are Ken Nicholson, the CEO of FTI Infrastructure, and Scott Christopher, the company's CFO . We have posted an investor presentation and press release on our website.
Speaker 3: which we encourage you to download if you have not already done so. Also, 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 adjusted EVA-GA. The reconciliation of those measures to the most directly comparable GAAP measures.
Speaker 3: can be found in the earnings supplement.
Speaker 3: Before I turn the call over to Ken, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and we 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...
Speaker 3: in our quarterly report filed with the SEC. Now I would like to turn the call over to Ken.
Speaker 3: Thanks, Alan, and good morning, everyone. This morning we will be discussing our first quarter financial results and also providing an update on the latest developments at each of our business segments. For this call, I'll be referring to the first quarter supplemental materials that were recently posted to our website. Before we get to the financials, I'm pleased to report that we will be paying our third dividend as a standalone company with our board authorizing a 3 cent per share quarterly dividend to be paid on May 26th to the holders of record on May 15th. Thank you.
Speaker 3: Now, onto the financials. We posted a strong first quarter financially and continue to generate momentum across our portfolio. Adjust the EBITDA for the quarter came in at 30.1 million prior to corporate expenses up sequentially from 9.5 million in the fourth quarter of 2022.
Speaker 3: In comparing our two most recent quarters, it's important to remind everyone that our fourth quarter results.
Speaker 3: included the impact of our long-range power plant outage. That said, our adjusted eBUT for the most recent Q1 was up meaningfully even after adjusting for the outage at long-range. More importantly, during the quarter, each of our four segments made good progress in advancing the respective businesses, and we are well positioned for substantial growth in 2023 in the years ahead. All in, we continue to target achieving this year a run rate of 200 million of annual adjusted eBUT from our segments with no additional capital.
Speaker 3: and in March, so we expect to see these volumes continue to increase in the quarters they had.
Speaker 3: Everponto, while the financial results reflected in adjusted EBITDA loss, the loss was largely the result of the fourth sale of natural gas liquids in inventory that were required to be removed prior to commencing our new multi-year tolling contract on April 1st, which a new tolling contract in place we expect for Pondor to generate an operating profit going forward.
Speaker 3: Finally, at Long Ridge Operations, returns to normal after the fourth quarter outage and we reported 11.3 million of adjusted EBITDA. All in, a very good quarter setting the stage for continued growth ahead.
Speaker 3: Briefly on the balance sheet. We ended the quarter with 40 million of cash. In the aggregate, we had 1.3 billion of debt shown on the balance sheet at March 31, approximately 515 million of which is issued at or guaranteed by our holding company, and approximately 750 million of which is issued on a non-recourse basis at the individual asset level.
Speaker 3: Our non-recourse death is issued primarily at Jefferson at an extremely low interest cost, long duration with weighted average maturity of 14 years, ample flexibility to pay dividends with excess cash flow and not callable in the event of a sale. In short, we do the non-recourse death at Jefferson as a valuable asset. I'll spend a few minutes providing more details on each of our segments and then plan to turn it over for questions. Starting with Transstar on slide 7 of the supplement, Transstar posted revenue of 41 million and adjusted EBITDA of 17.2 million to Q1 up from revenue of 35.8 million and adjusted EBITDA of 13.5 million to Q4.
Speaker 3: 1.1 million of revenue and 6.5 million of adjusted EBITDA 1, compared to 15.5 million of revenue and 4.5 million of EBITDA 1, Q4. Volumes for the quarter increase materially, both for refined products and crude oil, with total volumes averaging 163,000 barrels per day versus 102,000 barrels per day in Q4.
Speaker 3: The bulk of volume increases were attributable to the new X-On X-POR contract with the completion of X-On's $2 billion vol. refiner expansion in March, increasing X-On's refineric capacity by approximately 250,000 barrels per day to a total of 620,000 barrels per day. X-On's vol is now the largest refiner in North America.
Speaker 3: While business grows at Jefferson's main terminal, we also made solid progress on a recently acquired nearby property in Beaumont. We're seeing multiple opportunities for the storage, translating and export of renewable fuels and hydrogen-based products, and with Jefferson nearing full build-out, decided an ideal extension for our business. We expect this new addition, which we refer to as Jefferson South.
Speaker 3: to contribute incremental EBITDA as early as this year and to ultimately represent up to 50 million of opportunity for incremental EBITDA.
Speaker 3: Shifting to Ropano, we commenced on April 1st our multi-year contract to Transload Natural Gas Liquid using our Phase I system.
Speaker 3: In advance of commencing operations under the contract, Repono sold in March. It's then existing inventory, recording a loss on the sale driven by depressed butane prices. While not ideal timing, it was necessary in order to commencing tolling contract and not something we expect to reoccur. With Phase 1 having commenced, Repono is now focused on securing business for a larger Phase 2 triumplating system. As detailed on slide 9 of the supplement, our Phase 2 system is expected to maturely increase our storage and throughput capacity and when it comes online in a couple of years.
Speaker 3: Finally, moving on to Long Ridge. Long Ridge generated 11.3 million in EBITDA in Q1 up from an adjusted EBITDA loss of 6.6 million in Q4, which included the power plant outage that persisted for the bulk of the fourth quarter. Power generating capacity for Q1 was at 93 percent in gas production averaged 81,000 MMBTU per day in excess of the 7000 MMBTU required for plant operations. As we look for the remainder of 2023, we expect both plant operations and gas production to be stable while we progress a number of initiatives to increase revenue and profits.
Speaker 3: In the near term, we're expecting final approvals in the coming months for the upgrade of the power plant to 505 MW, an increase of 20 MW from our current generation capacity. That will contribute incrementally, but done the range of $5 to $10 million annually, based upon current four curves for the price of power.
Speaker 3: Over the longer term we're seeing increased interest from behind the meter customers, including data center developers and companies focused on energy transition opportunities.
Speaker 3: So to wrap up, we're pleased with our start to 2023 and excited about the things to come in the year ahead. With that, let me turn the call back over to Alan.
Speaker 2: Thank you, thank you, Ken. To Wanda, you may now open the call to Q&A. Thank you. Ladies and gentlemen, as a reminder to ask the question, please press Star 1-1 on your telephone and then wait for your name to be announced.
Speaker 2: To withdraw your question, that's star 11 again. Please stand by while we compile the Q&A roster.
Speaker 1: Food.
Speaker 2: Our first question comes from the line of Giuliano, Belladno with Compass Fort, Yalan is open. Good morning and great city of Yalan.
Speaker 4: The recovery and the transfer of longer is quarter. Starting off on the transfer side, I'm curious if US Steel was back up to full capacity now and related to the US Steel Pothig, I'm curious if there's any other business opportunities that the transfer could back into with the US Steel. Yeah, hey, Jim, thanks.
Speaker 3: we've been working with US Steel on a handful of new opportunities where we think we can save them money. And I definitely expect that we'll realize some of those opportunities during the path of this year. So, yeah, certainly opportunity probably 10 to 15 percent incremental revenue opportunity from our existing base.
that itself, just one transit facility will contribute at least, you know, a million dollars of revenue this year, probably up to two million dollars. So, you know, we plan to open ideally dozens of transit facilities in the year ahead. So, you know, it's a very effective impact of what that could have. Car repair is the other big component. We've got a big facility in Pittsburgh that is under construction, and that will be opening mid-year. We have an existing facility that needs a refurbishment, but down into Texas area and in Longview, and that will be opening as well later this year. And so, you know, precise timing is probably roughly in the 30s.
Yeah, feel good about it. Really, if we did nothing, no more third party customers and no car repair, the year should be about 80 million of EBITDA for a transfer, 75 to 80 million. We're running today just taking the first quarter, if you just annualize the first quarter is about 70 and I just make with normal growth, rate growth in the year ahead and some small addition of volume growth, the full quarter effect of all the blast furnaces being operating and what have you, that should be 75 and probably closer to 80 million of EBITDA.
So, you know, bringing in the car repair and third-party business incrementally to that, we should be at an annual level of 100 to 110 million or, you know, your 25 million plus per quarter by the end of the year.
That's right. And just where's the application on the teaching topics a little bit to long-wage? Where's the application?
Stan, for the incremental 20 megawatt operating, so bring up to 500 megawatts. It is scheduled to be approved in either July or August of this year. You know, we're obviously rooting for July because there's no incremental cost to that up rate. Yes, that's how does that operate? That's a big ends job.
The additional power revenue largely drops to the bottom line obviously. There's a little bit more gas that's needed to be produced or purchased in order to generate the additional megawatts. But we would be at the high end today of the 5 to 10 million Ring of Rink from Alipid So call it 10 million Ring of Ripid starting in July or August .
We have half of that, of course, on our own P&L, so it would add five to the long-ritch numbers starting in the third quarter.
And here's where things stand with the prospects of behind the meter customers and if there are any active recessions ongoing at the moment.
We're always an active discussion. I would say those are longer term projects. We obviously have new light that will be commencing construction on their facility late this year. We have a handful of other very large prospects.
These are prospects with each of which would require, I mean frankly they'd require 500 megawatts of power. They're significant. They are primarily focused on the data center space. You know, there is data center developers today are with the advent of CHEP GPT AI and what have you and the demands for power.
there is a significant rush to new data center capacity.
and some of the bigger players in the space are, you know, accelerating their development plans.
We're in a dialogue with all of the major players. There's one in particular who is closer. And again, the numbers are pretty significant. Those tend to be longer term developments. And so our goal, of course, is to sign up an additional opportunity, an addition to new light at some point in the next three to six months. And then typically that would be a one to two year bill before we start actually seeing the revenue from that project, but obviously it's incredibly valuable once you have it in place.
You know, called 12.5 million per quarter. I'm curious what the drivers are to get 15 million a quarter or 60 million a year run for language. Yeah, it is one of two things. It's either, as we just discussed, the additional, you know, behind the meter customers that may take some time, but the path to that annual 60 million, you know, would definitely be there. Otherwise, it's capacity options. The capacity options have been down materially over the past couple of years way off market. If they return to normal, you know, that alone basically gets us close to that 60 million.
It's just been an incredibly weak, the capacity auction market has been incredibly weak from our perspective. And with meaning capacity revenues are well below where they have traditionally been. That swings back in our favor. Then I think we're right there, you know, next year with the $60 million annual run rate. That sounds good. And then the government of Jefferson.
This quarter to date, second quarter to date, which we really had largely, you know, one month behind us, we're in excess of 200,000 barrels. And so it just gives you a sense for the momentum. We have capacity to handle the next system, 350,000 barrels per day. So we still have plenty of capacity, but yes, we're definitely seeing increased volumes as we're swinging into the second quarter here. And the trend line is very encouraging. You know, I would say there's still excess capacity. And, you know, Exxon is, as I said in my comments, it's...
It's the biggest for finery in North America, frankly, the Western hemisphere. And so there's still plenty of additional opportunity. We have the capacity to handle it. But I like the momentum and the current run rate. And if I'd like, what we saw in April . And then I think we can just expand on Jefferson's out and the P.K.S. clothes.
how much you paid for the land and if there's any CAPEX, or the way they're doing for themselves, those expected in the near future. Yeah, I'll describe it a little bit. It's a significant site, about 600 acres in total. We paid less than $25 million for the site.
It has two existing tenants that are major players and has about 200 acres available for development. It's on the other side of the river from Jefferson's main terminal.
The two tenants, there's some minor freight movements for the two tenants, but we do provide services to the tenants. So there really no net operating expenses for the site. So it doesn't impact owning that site, doesn't really generate incremental revenue, or certainly doesn't generate any incremental EBITDA for us, but represents a significant development opportunity. There is no CAPEX that is required just to maintain the site.
Like we've done a reponder, we will not invest capital into that site until we have a contract that justifies doing so. I do think in the coming months we will be executing our first contract with the third party for some translating business. That will be the first of a handful of opportunities. We acquired this site with a set of opportunities that we had underwritten and are now pursuing.
and seeking to secure, again, I think we'll have one here in the relatively near term. It'll represent somewhere between five and 10 million of income and leave it done, probably a 30 to 40 million dollar capital investment, but again, we won't be investing in a capital until we've secured business.
So that makes sense. And then I guess it would be great if you could provide a bridge from where you are now from the Abidog perspective to at Jefferson to reaching the 80 million or so per year. Run rate. Yeah, yeah, yeah. Yeah, yeah.
The simple way to think of it is
Incremental volumes, assuming the same rate per barrel, obviously generate incremental revenue, and our expenses are largely fixed. And so those incremental revenue dollars drop straight to the bottom line. Just to put it though in context, as I said, we moved 163,000 barrels per day in the first quarter on average, at an average rate of $1.30 per barrel.
That $30 is a bit of a mix up. There's some storage revenue. There's throughput revenue. They've been just trying to keep it simple. So $160,000, $1,30 per barrel. Generating about 19 million of revenue and 6.5 million of EBITDA.
We have capacity to handle, as we said, 350,000, up to almost 400,000 barrels per day. If you just double capacity, however, take the 165,000 that we did in the first quarter to about 300,000.
and hold the same rate per barrel of $1.30. You basically got right there to the $80 million run rate. You generate about 20 million of EBITDA on the quarter because the significant portion of the expenses are fixed. They don't grow with that volume growth. And you'd be generating about 19 to $20 million in the quarter.
As I said, the 163,000 for the first quarter is less than where we're currently running. We see significant positive momentum. So the path to getting to that, 300,000 barrels per day plus is a process. It is a path. But I like the momentum. We're running north of 200,000 barrels per day. So we're on our way.
I think it takes the bulk of the second quarter, ultimately to get there at some point in the third quarter, you know, swing into that kind of level. That's very helpful. And then such over to Rapano, I'd be curious where even though I should go, you know, now that the contract went a lot, the new Mutant Contract went live on April 1st. I realize this probably will be the translation during the first quarter.
just assume that single contract is probably closer to $5 million annually. The incremental capacity that's available for Phase 1, which is something we expect to secure here in the second quarter, we get you to about the $10 million annual run rate.
Obviously, the first quarter was a little bit frustrating. We had to spend a little bit of money to get ready for the new contract. We had to sell some inventory. Market timing was unfortunate there. That is behind us.
But with the existing contract in place, it will certainly be in the black. And if we can secure additional volumes to use all the capacity to phase one, we should be hitting, I would say, in the second half of this year, 2.5 million per quarter or 10 million annual run rate.
That's great. And then I'd be curious where you are on the prospects for securing the two sides for Phase 2. And if there's any cat backs at every panel other than the Phase 2 buildup. Yeah, no additional cat backs at every panel. We're done, you know, outside.
And then the volume's replaced too. So... um...
I'm glad you asked the question you did because it's not just off-take that we're seeking it is.
Supply on the one side and then the off-tick on the other side.
Frankly, it's less up seeking that it's more the off-taker. The off-taker is securing volumes of butane and propane from themselves in Utica, and then they're of course securing their own off-take in the European and African markets.
I would say we're very close with one brand name, very well-known player. And that's been several, several months of dialogue and back and forth. We have two others that are close behind. Look, these are massive institutions. They typically don't move terribly quickly. They're very thoughtful.
ready to go. It is permitted and engineered ready to go. We just want to make sure we have the contract in hand before we commit the capital.
That's great. And then you know, sitting away, you know, working the efforts more specific, specific aspects. I'm curious when you think something will be in a position to start paying down that and producing leverage.
We're targeting deferred later this year. At this point, we have...
Better uses for our capital, our cost of debt capital is relatively high, but at the same time, right now, the way our securities work, the cost to prepay, that debt is also relatively high. We have pretty attractive uses for our free cash flow. So I don't necessarily see us.
using cash to repay debt, you know, at some point this year. That's something that would start making sense as we swing into the fourth quarter and swing into 2024. You know, the ultimate plan would be by the time we get to mid-20024, we're in a position to refinance the entire balance sheet. And that it could be a highly creative thing.
to do at lower rates with a lot of excess cash. We're really a very different company, a very different credit profile. What have you when we're generating 200 million of eBidine annually? So we'll have the ability to refinance our debt at lower prices in the summer of next year. Maybe we'll take advantage of things that we have the opportunity to prior to that. I'd love to. But I do think any refinancing we do should be a highly accretive thing when we ultimately do it.
That's very helpful. And I'm looking across the board. Are you looking at any other M&A or JV opportunities at the forming assets at this point? Yeah. The answer is yes. We're always looking at stuff. There are a handful of opportunities in the ports and terminals sector.
that we've been looking at, those tend to be a little bit more spotty. We're primarily focused on opportunities in energy terminals, leveraging some of the relationships.
and the platform that we have today with Jefferson and Rapano. I'd say the most recent pick-up in activity is definitely on the rail space. It was very quiet last year. We're starting to see a pickup in opportunities. I'm thrilled we own TransDAR, of course, because it's a phenomenal platform for acquisitions. And yes, we're definitely seeing more opportunities in the rail space.
or the bulk of 2023.
That's great. Thank you for answering. A number of questions. Let me open up. I'm the Q&A there. I appreciate the whole of the answer. I will jump back on the kit. Thank you. Thank you.
Thank you for answering a number of questions. Let me monopolize the Q&A session there. But I appreciate it. I'll hold the answers and I will jump back in the queue. Thank you. No problem. Thank you. Thank you.
Thank you.
I'm showing no further questions in the queue. I will now like to turn the call back over to the Allen. Thank you, Tuwanda. And thank you all for participating in today's conference call. We look forward to updating you after Q2.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.