Q2 2023 FTAI Infrastructure Inc Earnings Call
Yeah.
Good morning, and thank you for standing by welcome to the second quarter 'twenty to 'twenty three F. T. AI infrastructure earnings conference call. At this time, all participants are in a listen only mode. After the speaker.
<unk> Street location, there will be a question and answer session to ask a question. During this session you will need to press star one one when your child was down you would then here not I mean, the message of icing. Your hand, just raised to withdraw your question. Please press star one one again, please be advised that today's conference is being record.
I would now like to hand, the conference over to your Speaker today, Alan Andrey Lee head of Investor Relations. Please go ahead.
Thank you Michelle I would like to welcome you all to the <unk> infrastructure second quarter 2023 earnings call.
Joining me here today are Ken Nicholson, the CEO infra.
Infrastructure and Scott Christopher at the company's CFO .
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 also please note that this call will jump to the public in listen only mode and is being webcast.
We will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA and 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.
Shipments 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.
I turn the call over to Ken.
Thank you Alan and good morning, everyone. This morning, we'll be discussing our second 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 second quarter supplemental materials recently posted to our website.
Before we get to the financials I'm pleased to report that we will be paying our fourth dividend as a standalone company with our board authorizing a <unk> <unk> per share quarterly dividends to be paid on August 15th.
Holders of record on August eight.
Now onto the financial results adjusted EBITDA for the second quarter came in at $36 2 million prior to corporate expenses up 20% sequentially from $30 1 million in the first quarter of 2023 and representing a record result for our company.
Three of our four business segments posted growth quarter over quarter, while our long ridge power and gas business continued to generate double digit EBITDA, just slightly softer than Q1 as lower gas prices that we slowed down sales of gas into the third party market.
More importantly during the quarter, we made good progress on a number of new initiatives and growth projects. So we expect to continue to experience growth in the second half of 2023 and the years ahead.
Just on these initiatives, we continue to target, reaching a run rate of $200 million of annual adjusted EBITDA from our segments by the end of 2023 with no additional capital required to meet that target.
In terms of the highlights at each segment transfer had a great quarter with adjusted EBITDA coming in at $23 million up 18% from Q1 of this year at Jefferson, while adjusted EBITDA for the quarter was also a new record we're even more excited about a number of new business wins, we secured during Q2 and are confident we will begin to post <unk>.
Digit EBITDA in Q3 and beyond.
While the financial results, reflecting adjusted EBITDA loss. This loss was largely a result of the startup of operations under our new multiyear tolling contract experienced in the early parts of the corner and we're entering Q3 now generating positive adjusted EBITDA.
Finally at long Ridge normal operations continued and we reported $10 4 million of adjusted EBITDA all in a very strong quarter setting the stage for continued growth.
Briefly on the balance sheet, we ended the quarter with $42 5 million of cash in the aggregate, we had $1 $3 billion of debt shown on the balance sheet at June 30. Shortly after the quarter end in July we issued a $100 million of additional debt through an add on to our existing senior secured notes proceeds from the issuance were used to repay approximately <unk>.
$75 million of existing debt, including our $50 million revolver at transtar, So pro forma for the issuance total debt on our balance sheet increased only slightly by $25 million from the June 30 balances that are reflected in the earnings supplement and in our 10-Q importantly, transtar is now completely debt free meaning all cash generate.
That the business can be distributed up to <unk> with no limits or restrictions.
I'll spend a few minutes, providing more details on each of our segments and then plan to turn it over for questions ill start with transtar on slide seven of the supplement.
Transtar posted revenue of $42 5 million and adjusted EBITDA of $20 3 million in Q2 up from revenue of $41 million and adjusted EBITDA of $17 2 million in Q1.
Both carload volumes and average rate per carload were higher for the quarter as U S steel production at the Gary, Indiana, Pittsburgh, Pennsylvania facilities continued at normal levels away from U S. Steel. We also continue to make very good progress on multiple initiatives that trend start to drive incremental third party revenue and EBITDA. We expect these programs to represent approximately $30 million of income.
Rental EBITDA opportunities annually with no additional investment.
Now on to Jefferson Jefferson generated $17 1 million of revenue and $7 1 million of adjusted EBITDA in Q2, compared to $19 $1 million of revenue and $6 5 million of EBITDA in Q1, I'll take a minute to discuss the makeup of the P&L for the quarter, which showed a shift to increased volumes of refined products versus crude oil.
Trans loading rates for refined products are typically lower on a per barrel basis for Jefferson given that the process involves no heating or blending as crude often does the refined products can also generate a higher margin since the operating costs associated with refined products are quite low for Q2, Youll see we posted lower revenue due to this dynamic but continued to pay.
And EBITDA due to lower operating expenses.
More importantly at the end of the second quarter, we completed commissioning and started operations at our new ship dock, which doubles Jefferson's ship handling capacity represents the final component of Jefferson's full build out at the <unk> terminal.
New ship cleared the new ship docks clears the path for our refinery customers to now fully utilized Jefferson storage and trans loading capabilities and we expect substantial increases in volumes entering the second half of the year.
On the new business front, we recently secured two new contracts at Jefferson The first which is that the main terminal involves the handling of storage handling and storage of naphtha for large trading firm that commenced immediately and should more than offset the reduced crude oil volumes. We saw during Q2.
Second contract, which is materially more meaningful is that our newly acquired at Jefferson South site, where we secured a new 15 year contract for the trans loading and export of hydrogen based clean fuels commencing in 2025.
Together. These two contracts are expected to generate in excess of $10 million of annual EBITDA and potentially materially more.
Expect to enter into additional contracts for the handling of clean fuels in the coming months as new developments in the Beaumont market have been accelerating generating new demand in an environment, where supply of available logistics terminals is very scarce.
Moving to <unk>, we commenced our multiyear contract with trans load natural gas liquids using our phase one system in Q2, the contract with one of the world's leading trading companies has minimum volume commitments and does not expose our products at commodity prices we.
We did experienced some initial startup costs that resulted in a small adjusted EBITDA loss in Q2, but as I mentioned, there should be behind us and we're generating positive EBITDA going forward.
With phase one having commenced upon it is now focused on securing business for our larger phase II translating system as detailed on slide nine of the supplement our phase II system is expected to materially increase our storage and throughput capacity when it comes online in two years in the aggregate, we expect phase two to cost approximately 200 million to build and agenda.
Rate 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 onto long rich large generated $10 4 million in EBITDA in Q2 versus $11 3 million in Q1 power plant operations were steady while gas production was managed down during the quarter in the currently low lower gas pricing environment at gas prices of under $1 50 per M and Btu our profit.
On third party sales is less impactful.
We have deliberately limited production to volumes needed solely to fuel the power plant and opted to keep excess gas in the ground in anticipation of higher gas prices, which are typical as we enter the fall and early winter.
At long Ridge, we continue to progress a number of initiatives in the near term, we're expecting final approvals in the coming months for the upgrade of the power plant to 505 megawatts in.
An increase of 20 megawatts from our current generation capacity that will contribute incremental EBITDA in the range of $5 million to $10 million annually based upon current forward curves for the price of power.
Over the longer term, we are 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 first half of 2023 and excited about the things to come in the next half of the year with that let me turn the call back to Allen.
Thank you Ken Michelle you May now open the call to Q&A.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby lack compile the Q&A wrong Sir.
Our first question comes from Giuliano Bologna with Compass point your line is open.
Good morning, Thanks for taking my questions.
Starting off.
You hear it from a high level.
Sequentially.
On a quarter basis.
Consolidated EBITDA was up 26% Im curious if youre expecting similar increases in preclinical work.
Throughout the balance of that point Greg.
Yes, we are.
Yes.
<unk> continued to ramp up.
Thanks, Joe and honored by the way.
We.
We do we are expecting to maintain 20% EBITDA growth from the segments in closer to 25% after corporate expense I think the only the only.
Blip and that is from time to time, we have scheduled maintenance at long Ridge power plant and so that may that may affect a month's worth of.
Cash flow out of long ridge in any in any particular quarter, depending upon when that month falls I do think we have a scheduled maintenance events.
Coming up later this year, whether that falls in the month of September the month of October will ultimately drive what long ridge ends up doing in that particular quarter, but outside of that yes. That's the pace of growth we're anticipating to continue.
That's great.
Our asset by asset basis.
So starting off with <unk>.
I'm curious if there's any third party EBITDA contribution of $20 3 million reported in the second quarter.
Yes, I'd say about <unk>.
Directionally about 10% of that EBITDA.
It's attributable to third parties.
Obviously our goal is.
You just need to integrate that and diversify the revenue stream.
I think we got a lot of things going on that are going to enable us to do that as we as we have been entering the second half of the year and turn into next year I'm excited about it I think.
There are a number of different initiatives that will that will drive EBITDA growth and also diversify the EBITDA.
That sounds good.
Excellent.
Talk a little bit more detail around the $30 million of incremental EBITDA trends are and the timing around when that could start with luxury.
Part of it starting to flow through the balance of the $30 million yes.
Yes, yes.
The vast majority is.
Attributable third party business, we have a number of.
New developments coming online in the coming months, very large railcar repair and maintenance facility in Pittsburgh.
Which is which is progressing really nicely I was and I was in Pittsburgh.
Just about a month ago and saw the progress that's going to be a big deal.
For the Union Railroad transfer Union Railroad in Pittsburgh, we have a new trans load facility. We're tripling the size of the trans load facility and the Detroit area and Thats coming along great I would say of the $30 million.
Safe to say $15 million to $20 million is in a very very good place.
It's.
I wouldn't say, it's entirely 100% in the bag, but it's coming along very well im highly confident and $15 million to $20 million of the 30, I think the remaining $10 million or so is for us and the Transtar management team to go get but I think that's very achievable given the assets that we have and all the activity around us so feel very good about where <unk> is today.
We had a very good second quarter.
I think we will continue to have strong third and fourth quarters and solely to chip away at that $30 million and the <unk>.
Couple of quarters ahead.
Okay and then.
But a different angle I'm curious.
Or do you think the ultimate potential is for <unk> overtime.
Well I mean, the potential could be significant width with acquisitions and additional investment without additional investment given the capacity.
And the leverage ability of the existing rail systems, I'd say, it's plus or minus 159 to EBITDA I think the potential for the assets in place over the next couple of years two to three years with no material incremental investment it probably reaches about $150 million.
EBITDA, that's our longer term project for the collection of railroads at Transtar. Obviously, the goal is to exceed that with new investments and we're always looking for new opportunities, but I think over the next two to three years and our longer term plan is to hit.
A $1 50 number plus or minus.
Okay, great. Thanks, and then shifting over to Jefferson.
Where do you see the near term growth.
And EBITDA coming from that would get you to that 10 million.
And a greater quarterly EBITDA run rate starting in the third quarter.
Yes, I mean, I really yes, I really think we're largely there is we're now almost one month into the third quarter.
In terms of the double digit EBITDA I think the biggest development. Obviously, we have a couple of new contracts that are super.
One is commencing immediately and so that's going to have an immediate impact.
But really from an infrastructure standpoint, it was the completion of the second ship dock remember at Jefferson.
We now have three docks and dock space for energy terminals is it's like the front door to the house.
You can you can only manage so much volume if you have constraints at your docs, we completed dark too.
We had been operating with docs and docs three we completed <unk> two at the end of June .
So that was the bottleneck to the entire 6 million barrel.
Logistical system and now that that is operating I think that that's going to be a big big.
Sort of contributor to additional volume and additional <unk>.
EBITDA growth I think it is going to come from refined products primarily.
I don't I think crude oil is continuing to come out of the Uinta basin and will continue to see a steady flow of Uinta basin crudes Canadian crudes tend to be more volatile I think the real growth over the next three to six months for Jefferson as we can.
Start to post double digit EBITDA will really be through the refined products, which again will be lower revenue as we saw in the second quarter, but higher EBITDA.
Well it sounds good.
Related to the new 15 year contract.
Okay.
<unk> project can you tell me a little more about.
The Capex for that project and also recurring EBITDA contribution or Rmi.
Yes, I mean, we're particularly excited about that contract that is really the first major.
Hydrogen based fuel trans loading contract that I'm aware of in the entire Beaumont Port Arthur market, we secured the business.
The it is that our Jefferson South terminal, which is a different piece of land located across the river that was if you recall a terminal we purchased last year.
We have been developing and there is a lot to do very much believe that this first contract is the first of many that will be particularly focused on clean fuels.
When we purchased that say it had an existing dock in order to.
Handle this contract that dock needs to be refurbished we estimate that will be between $30 and $40 million of expenditure.
That that will be required to refurbish the dock in order to start the business. So it's not terribly significant and the economic returns are very compelling, particularly given it's a 15 year contract by the way that contract is not just long term, but it also contains minimum volume commitments from the counterparty and so 15 years minimum volumes lock.
And what will ultimately become double digit EBITDA and a $30 million to $40 million investment is something we really like.
That's great.
Over to Rami.
How close are you hearing.
Getting approval on the cavern.
And also.
Of course, youre carrying new contracts to reach.
Sure.
It is those two.
Projects that you just mentioned are now really our sole priority at <unk>.
I think we're about.
At some point over the next three months I think we'll have the permits in hand for the caverns and I think we'll have contracts in place for phase II, where we're very close it's very active engagement with the permitting agencies in Counterparties would.
I would like to have had it all done by now but.
Don't control the timing of these things and so very very close our goal is to have that stuff all done in the next three months.
And then thinking about.
And part of our long rage.
I think that's all going to the primary source of Qualcomm will be there in a quarter, but I'd be curious at what price do you see that.
What price would you need to see natural gas.
Before turning on gas that was again.
Yes, I mean are.
Underlying prices today are anywhere from $1 30 to $1 50, and <unk> those are market prices in our region.
We produce gas ourselves at slightly less than that so.
Radically it would be profitable to produce excess gas and sell it into the third party market. It just wouldn't be much in the way of profits and.
We sort of.
Made the decision that in this environment, we will produce less and bank the gas in the ground knowing that.
It is highly likely.
In the late fall and early winter that gas prices will go up of course, no. One really knows precisely what will happen to gas prices, but I would tell you.
Generally we would target roughly $2 in <unk>, maybe a little bit less prices creep up to a $1 $80 $92 I think we'd start turning back on gas production.
North of $2 for sure we would we would start producing excess gas again and selling into the market.
Kurt.
About <unk> of a general question.
You can go.
The $50 million quarter or $200 million run rate quarter by components, the right sense of where the growth contribution.
To get to that 200 million run rate.
Starting by the end of 'twenty three.
Sure Yes.
I'll just go through it.
Each.
Of the four segments and then deducts.
Some got some corporate expense.
Added up that way.
I mean transtar.
I really think in.
In the next two quarters should be running at $25 million of EBITDA.
Certainly as we swing into.
Next year.
Out of 23 and into 'twenty four we should be we should be pushing up against 25 million of EBITDA. So that's the number of transtar Jefferson high teens.
Call It 17 $18 million at Jefferson at the end of Q4.
Feel pretty comfortable with that target for ponto.
We will continue to be small until phase III kicks in upon will be $2 million to $3 million.
Of EBITDA and long ridge should continue to be steady.
Producing EBITDA of about $12 million for us.
So add all that up deducts.
Probably than at the end of the year be closer to 7 million of corporate expense, maybe eight but add up.
I think I said 25 2014.
Three ish.
<unk> and deduct eight and you should get pretty close to the 50.
That's great. Thanks.
One last one.
I am curious.
I'm curious to know what the current M&A environment looks like for you.
You bet.
Yes.
It's a great question, we're definitely seeing increased activity.
Obviously, we're going to continue to be very disciplined.
But I do feel like with with the momentum at Transtar.
And our terminals businesses really maturing.
And the teams of professionals, we put in place both at the railroad and at the terminals business. We are a very capable buyer of additional businesses and assets in those two spaces.
<unk>.
Yes, we're reviewing a lot I would say it's been now 12 months that fit theres been an independent public company and we are definitely as busy as we have.
As we have been in that 12 month period looking at investment opportunities.
So.
I'm hopeful I'm hopeful we'll see something in.
In the next few quarters based on all of this activity, but you never know and as I said, we will continue to be very disciplined, but I definitely think the M&A market, which was admittedly quite slow.
Late last year and enter into early this year has been has been coming back and we're seeing more and more opportunities for sure.
That's great I really appreciate the time and answering all my questions and ill jump back on here. Thank you.
I show no further questions at this time I would now like to turn the call back to Alan for closing remarks.
Thank you Michelle and thank you all for participating in today's call. We look forward to updating you after Q3.
This concludes today's conference call. Thank you for participating you may now disconnect.
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