Q1 2023 FTAI Infrastructure Inc Earnings Call

Speaker 1: You.

Speaker 1: I'll see you next time.

Operator: Hello, thank you for standing by and welcome to FTAI Infrastructure Q1 2023 Earnings Conference Call. 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 one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker, Alan Andreini. You may begin, sir.

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.

Alan Andreini: Thank you, Tawanda. I would like to welcome you all to the FTAI Infrastructure Q1 2023 Earnings Call. Joining me here today are Ken Nicholson, the CEO of FTAI Infrastructure, and Scott Christopher, the company's CFO. We have posted an investor presentation and press release on our website, 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 EBITDA. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. 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.

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...

Alan Andreini: These 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. Now I would like to turn the call over to Ken.

Ken Nicholson: Thanks, Alan, and good morning, everyone. This morning, we will be discussing our Q1 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 Q1 supplemental materials that were recently posted to our website.

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.

Ken Nicholson: 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 $0.03 per share quarterly dividend to be paid on 26 May to the holders of record on 15 May. Now on to the financials. We posted a strong Q1 financially and continued to generate momentum across our portfolio. Adjusted EBITDA for the quarter came in at $30.1 million prior to corporate expenses, up sequentially from $9.5 million in the Q4 of 2022. In comparing our two most recent quarters, it's important to remind everyone that our Q4 results included the impact of our Long Ridge power plant outage. That said, our Adjusted EBITDA for the most recent Q1 was up meaningfully even after adjusting for the outage at Long Ridge.

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.

Ken Nicholson: More importantly, during the quarter, each of our four segments made good progress in advancing their respective businesses, and we are well positioned for substantial growth in 2023 and the years ahead. All in, we continue to target achieving this year a run rate of $200 million of annual adjusted EBITDA from our segments, with no additional capital required to meet that target. In terms of the highlights at each segment, Transtar continues to be a substantial producer of cash flow for us, with adjusted EBITDA coming in at $17.2 million for the quarter, up 27% from the Q4 of last year. At Jefferson, we began to handle volumes of refined products for export under our new contract with ExxonMobil. ExxonMobil completed the BLADE expansion in March, so we expect to see these volumes continue to increase in the quarters ahead.

Ken Nicholson: At Repauno, while the financial results reflected an adjusted EBITDA loss, the loss was largely the result of the forced sale of natural gas liquids in inventory that were required to be removed prior to commencing our new multi-year tolling contract on 1 April. With the new tolling contract in place, we expect Repauno to generate an operating profit going forward. Finally, at Long Ridge, operations returned to normal after the Q4 outage, and we reported $11.3 million of adjusted EBITDA. All in, a very good quarter, setting the stage for continued growth ahead. Briefly on the balance sheet. We ended the quarter with $40 million of cash.

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.

Ken Nicholson: 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. Our non-recourse debt 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 view the non-recourse debt 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 Transtar on slide seven of the supplement.

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.

Ken Nicholson: Transtar posted revenue of $41 million and adjusted EBITDA of $17.2 million in Q1, up from revenue of $35.8 million and adjusted EBITDA of $13.5 million in Q4 of last year. Both carload volumes and average rate per carload were higher for the quarter as U.S. Steel production at the Gary, Indiana, and Mon Valley, Pennsylvania, facilities returned to more normal levels, with blast furnaces returning from temporary idling. Away from U.S. Steel, we also continue to make good progress on multiple initiatives at Transtar to drive incremental third-party revenue and EBITDA. We expect these programs to represent approximately $30 million of incremental EBITDA opportunities annually with little to no additional investment. Now on to Jefferson. Jefferson generated $19.1 million of revenue and $6.5 million of adjusted EBITDA in Q1, compared to $15.5 million of revenue and $4.5 million of EBITDA in 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.

Ken Nicholson: Volumes for the quarter increased 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. The bulk of volume increases were attributable to the new ExxonMobil export contract with the completion of ExxonMobil's $2 billion Beaumont Refinery expansion in March, increasing ExxonMobil's refinery capacity by approximately 250,000 barrels per day to a total of 620,000 barrels per day. ExxonMobil Beaumont is now the largest refinery in North America. 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, transloading, and export of renewable fuels and hydrogen-based products. With Jefferson nearing full build-out, this site is an ideal extension for our business.

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.

Ken Nicholson: We expect this new addition, which we refer to as Jefferson South, to contribute incremental EBITDA as early as this year and to ultimately represent up to $50 million of opportunity for incremental EBITDA. Shifting to Repauno. We commenced on 1 April our multi-year contract to transload natural gas liquids using our Phase 1 system. The contract, which is with one of the world's leading trading companies, has minimum volume commitments and does not expose Repauno to commodity prices. In advance of commencing operations under the contract, Repauno sold in March its then existing inventory, recording a loss on the sale driven by depressed butane prices. While not ideal timing, it was necessary in order to commence the tolling contract and not something we expect to reoccur. With Phase 1 having commenced, Repauno is now focused on securing business for our larger Phase 2 transloading system.

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.

Ken Nicholson: As detailed on slide nine of the supplement, our Phase 2 system is expected to materially increase our storage and throughput capacity and when it comes online in a couple of years. In the aggregate, we expect Phase 2 to cost approximately $200 million to build and to generate in excess of $40 million of annual EBITDA once complete. We have demand from multiple international off-takers, and our goal is to enter into long-term agreements with multiple parties in the coming months. 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 Q4. Power generating capacity for Q1 was at 93%, and gas production averaged 81,000 MMBtu per day, in excess of the 72,000 MMBtu required for plant operations.

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.

Ken Nicholson: As we look to 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. In the near term, we're expecting final approvals in the coming months for the uprate of the power plant to 505 MW, an increase of 20 MW from our current generation capacity. That will contribute incremental EBITDA in the range of $5 to 10 million annually based upon current forward curves for the price of power. 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. 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 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.

Alan Andreini: Thank you. Thank you, Ken. Tawanda, you may now open the call to Q&A.

Operator: Thank you. Ladies and gentlemen, as a reminder, to ask the question, please press star 11 on your telephone and then wait for your name to be announced. To withdraw your question, that's star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Giuliano Bologna with Compass Point. Your line is open.

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.

Giuliano Bologna: Good morning. Great to see the recovery in Transtar and Long Ridge this quarter. Starting off on the Transtar side, I'm curious if U.S. Steel is back up to full capacity now. Related to the U.S. Steel topic, I'm curious if there's any other business opportunities that Transtar could tap into with U.S. Steel.

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.

Ken Nicholson: Yeah. Hey, Giuliano, thanks. They are. All blast furnaces are back up and running. Operations there seem to be back to stable and normal conditions. That doesn't mean for Transtar there isn't further opportunity for growth. Of course, U.S. Steel brings in raw materials and then ships out finished steel products, and they do that by three primary modes: rail, first and foremost; marine, freight by barge; and then lastly by truck. I think the biggest opportunity for Transtar is the conversion of trucked traffic today to rail. Rail is materially more efficient. We've been working with U.S. Steel on a handful of new opportunities where we think we can save them money. I definitely expect that we'll realize some of those opportunities during the path of this year.

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.

Ken Nicholson: Yeah, certainly opportunity, probably 10% to 15% incremental revenue opportunity from our existing base through converting currently trucked freight to rail.

Giuliano Bologna: That's great. Staying on the Transtar topic, where do you stand on the initial third-party business opportunities that you're working on, that you were mentioning should drive roughly $30 million of incremental EBITDA?

Ken Nicholson: Yeah.

Giuliano Bologna: What's the timing of some of those opportunities starting to roll in?

Ken Nicholson: Yep. I'd say it's during the course of this year, 2023. They're really in two primary categories. One is just third party freight movements. We continue to open up transload facilities to stimulate some of that. Our most successful one to date is up in the Detroit area on the Delray Connecting Railroad. That's doing very well. That itself, just one transload facility, will contribute at least $1 million of revenue this year, probably up to $2 million. We plan to open ideally dozens of transload facilities in the year ahead. You can get a sense for the 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.

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.

Ken Nicholson: We have an existing facility that needs some refurbishment down in the Texas area, in Longview, and that'll be opening as well later this year. Precise timing is probably roughly in Q3 when those facilities are able to be opened up and start generating revenue. You get a sense, by the time we swing into Q4, we should be in a pretty good place for both third-party business and the incremental repair revenue.

Giuliano Bologna: That's great. I think, granted, you're still kind of rounding back up EBITDA at Transtar in Q1. Kind of before the outage, you were running $18.5 million to $19 million a quarter range with just the base U.S. Steel business, and the $30 million of MF, would add $7.5 million a quarter. I'm curious about thinking about your ability to get to $25 million a quarter or $100 million run rate by the end of the year.

Ken Nicholson: 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 Transtar, $75 million to $80 million. We are running today, just taking the Q1, if you just annualize the Q1, it is about $70 million. I just think with normal growth, rate growth in the year ahead and some small additional volume growth, the full quarter effect of all the blast furnaces being operating and what have you, that should be $75 million and probably closer to $80 million of EBITDA. Bringing in the car repair and third-party business incrementally to that, we should be at an annual level of $100 million to $110 million or your $25 million plus per quarter by the end of the year.

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.

Giuliano Bologna: That's great. I'm curious, switching topics a little bit to Long Ridge. Where does the application stand for the incremental 20 MW operating, so bringing it up to 505 MW?

That's right. And just where's the application on the teaching topics a little bit to long-wage? Where's the application?

Ken Nicholson: It is scheduled to be approved in either July or August of this year. We're obviously rooting for July because there's no incremental cost to that operate and the additional power revenue largely drops to the bottom line. There's a little bit more gas that's needed to be produced or purchased in order to generate the additional megawatts. We would be at the high end today of the $5 to $10 million of incremental EBITDA. Call it $10 million of EBITDA starting in July or August. We have half of that, of course, on our own P&L, so it would add $5 to the Long Ridge numbers starting in Q3.

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.

Giuliano Bologna: That's right. I'm curious where things stand with prospects of behind-the-meter customers and if there are any active discussions ongoing at the moment.

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.

Ken Nicholson: We're always in active discussions. I would say those are longer-term projects. We obviously have Newlight that will be commencing construction on their facility late this year. We have a handful of other very large prospects. These are prospects that each of which frankly, they'd require 500 megawatts of power. They're significant. They are primarily focused on the data center space. Data center developers today are, with the advent of ChatGPT, AI, and what have you, and the demands for power, there is a significant rush to new data center capacity. Some of the bigger players in the space are accelerating their development plans. We're in a dialogue with all of the major players. There's one in particular who is closer. Again, the numbers are pretty significant. Those tend to be longer-term developments.

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.

Ken Nicholson: Our goal, of course, is to sign up an additional opportunity in addition to Newlight at some point in the next 3 to 6 months. Typically that would be a 1 to 2-year build before we start actually seeing the revenue from that project. Obviously, it's incredibly valuable once you have it in place.

Giuliano Bologna: That's great. When I look at Long Ridge, you're at $11.3 million of EBITDA this quarter, and that incremental, call it $5 million, assuming 50% interest, would get you up to, call it $12.5 million per quarter. I'm curious what the drivers are to get to $15 million a quarter or $60 million a year run rate for Long Ridge.

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.

Ken Nicholson: Yeah. It is one of two things. It's either, as we just discussed, the additional behind-the-meter customers. That may take some time, but the path to that annual $60 million would definitely be there. Otherwise, it's capacity auctions. Capacity auctions have been down materially over the past couple of years, way off market. If they return to normal, that alone basically gets us close to that $60 million. The capacity auction market has been incredibly weak from our perspective, meaning capacity revenues are well below where they have traditionally been. That swings back in our favor, then I think we're right there next year with the $60 million annual run rate.

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.

Giuliano Bologna: That sounds good. Then switching over to Jefferson. Is the BLADE project with ExxonMobil fully ramped up at this point? If it's not, it'd be great to know what the exact timeline is to reach full capacity for that.

Ken Nicholson: Yep. I would say every month is growing. We averaged 163,000 barrels per day in Q1. This quarter to date, Q2 to date, for which we've really had largely one month behind us, we're in excess of 200,000 barrels. Just to give you a sense for the momentum, we have capacity to handle in excess of 350,000 barrels per day, so we still have plenty of capacity. Yes, we're definitely seeing increased volumes as we're swinging into Q2 here, and the trend line is very encouraging. I would say there's still excess capacity. ExxonMobil is, as I said in my comments, it's the biggest refinery in North America, frankly, the Western Hemisphere. There's still plenty of additional opportunity, and we have the capacity to handle it.

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...

Ken Nicholson: I like the momentum and the current run rate, and I like what we saw in April.

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.

Giuliano Bologna: Sounds good. Then I'd be curious if you can just expand on Jefferson South, and if you can disclose how much you paid for the land and if there's any CapEx related to Jefferson South that's expected in the near term.

Ken Nicholson: Yeah. I'll describe it a little bit. It's a significant site. It's about 600 acres in total. We paid less than $25 million for the site. It has two existing tenants that are major players. It 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 are really no net operating expenses the site. 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 at Repauno, we will not invest capital into that site until we have a contract that justifies doing so.

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.

Ken Nicholson: I do think in the coming months, we will be executing our first contract with a third party, for some transloading business. That'll 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 $5 and 10 million of incremental EBITDA and probably a $30 to 40 million capital investment. Again, we won't be investing any capital until we've secured business.

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.

Giuliano Bologna: Yeah, that makes sense. I guess it would be great if you could provide a bridge from where you are now from an EBITDA perspective to at Jefferson to reaching the $80 million or so per year run rate.

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.

Ken Nicholson: Yeah. The simple way to think of it is incremental volumes, assuming the same rate per barrel, obviously generate incremental revenue, our expenses are largely fixed. 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 Q1 on average at an average rate of $1.30 per barrel. That $1.30 is a bit of a mix up. There's some storage revenue, there's throughput revenue in there, I'm just trying to keep it simple. 163,000 at $1.30 per barrel, generating about $19 million of revenue and $6.5 million of EBITDA. We have capacity to handle, as I said, 350,000 up to almost 400,000 barrels per day.

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.

Ken Nicholson: If you just double capacity, however, take the 165,000 that we did in the Q1 to about 300,000 and hold the same rate per barrel of $1.30, you've basically gotten right there to the $80 million run rate. You generate about $20 million of EBITDA in the quarter. Because a significant portion of the expenses are fixed, they don't grow with that volume growth. You'd be generating about $19 to $20 million in the quarter. As I said, the 163,000 for the Q1 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 Q2 ultimately to get there.

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.

Ken Nicholson: At some point in Q3, we swing into that kind of level.

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.

Giuliano Bologna: That's very helpful. Switching over to Repauno. I'd be curious where EBITDA should go, now that the new butane contract went live on 1 April. I realize there's probably a little bit of transition during the Q1 of the contract going live. I'm curious where the quarterly or annual run rate should be.

Ken Nicholson: Well, our target for Phase 1 is $10 million of annual EBITDA. The contract in place is for about two-thirds of our total Phase 1 capacity. If you just assume that single contract, it's probably closer to $5 million of annual EBITDA. The incremental capacity that's available for Phase 1, which is something we expect to secure here in Q2, would get you to about the $10 million annual run rate. Obviously, Q1 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. With the existing contract in place, we'll certainly be in the black.

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.

Ken Nicholson: If we can secure additional volumes to use all the capacity of Phase 1, we should be hitting, I would say, in H2 of this year, $two and a half million per quarter or $10 million annual run rate.

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.

Giuliano Bologna: That's great. I'd be curious where you are on the prospects for securing the two sides for Phase 2.

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.

Ken Nicholson: Yeah.

Giuliano Bologna: If there's any CapEx at Repauno other than the Phase 2 buildup.

Ken Nicholson: No additional CapEx at Repauno. We're done outside of what would be Phase 2. Everything's working extremely well. There's no need for additional capital other than the Phase 2 expansion. We have a handful of folks, all very large international players that we're in a dialogue with about volumes for Phase 2. I'm glad you asked the question the way you did, because it's not just offtake that we're seeking. It is supply on the one side and then the offtake on the other side. Frankly, it's less us seeking that. It's more the offtaker. The offtaker is securing volumes of butane and propane from the Marcellus and Utica, and then they're, of course, securing their own offtake in the European and African markets. I would say we're very close with one brand name, very well-known player. That's been several months of dialogue and back and forth.

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.

Ken Nicholson: We have two others that are close behind. Look, these are massive institutions. They typically don't move terribly quickly. They're very thoughtful, of course, because they're committing to five to 10 years of a supply chain. I'm confident we'll get at least one of these guys to sign up in the coming months. I think all we need is one. Once we have one, we'll commit to the project and go ahead and finance it and start construction. It's ready to go. It is permitted, engineered, ready to go. We just want to make sure we have the contract in hand before we commit the capital.

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.

Giuliano Bologna: That's great. Then, kind of switching away from the assets more so, the specific assets. I'm curious, when do you think the company will be in a position to start paying down debt and reducing leverage?

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.

Ken Nicholson: We're targeting that for later this year. At this point, we have better uses for our capital. Look, our cost to 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. I don't necessarily see us using cash to repay debt at some point this year. That's something that would start making sense as we swing into Q4 and swing into 2024. The ultimate plan would be by the time we get to mid-2024, we're in a position to refinance the entire balance sheet. That, I think, will be a highly accretive thing to do at lower rates with a lot of excess cash.

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.

Ken Nicholson: We're really a very different company, a very different credit profile and what have you when we're generating $200 million of EBITDA annually. 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 if we have the opportunity to prior to that, I'd love to. I do think any refinancing we do should be a highly accretive thing when we ultimately do it.

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.

Giuliano Bologna: That's very helpful. Kind of looking across the board, are you looking at any other M&A or JV opportunities at the four main assets at this point?

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.

Ken Nicholson: 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 Repauno. I'd say the most recent pickup 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 Transtar, of course, because it's a phenomenal platform for acquisitions. Yes, we're definitely seeing more opportunities in the rail space. That's a nice thing. Nice tuck-in opportunities or some that are slightly more chunky but highly complementary with Transtar.

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.

Ken Nicholson: We're always looking at stuff and yeah, I'm pleased that we're seeing a little bit more liquidity or fluidity in the M&A market. Expect that to last for the bulk of 2023.

Giuliano Bologna: That's great. Yeah, thank you for answering a number of questions and letting me monopolize the Q&A session there. I appreciate all the answers and I will jump back in the queue. Thank you.

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.

Ken Nicholson: No problem. Thanks very much.

Operator: Thank you. I'm showing no further questions in the queue. I will now like to turn the call back over to Alan.

Thank you.

Alan Andreini: Thank you, Tawanda, and thank you all for participating in today's conference call. We look forward to updating you after Q2.

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.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.