Financial Performance for the Quarter in Line with Expectations:
- Net income of $21.4 million
- Adjusted Proportionately Combined EBITDA excluding non-cash items of $175.5 million
- Cash provided by operating activities of $147.1 million
- Adjusted Free Cash Flow of $127.5 million
- Full-year 2018 guidance for Adjusted Proportionately Combined EBITDA excluding non-cash items, dividends reaffirmed
- Manager waives certain fees under Management Services Agreement
Significant Momentum on Strategic Initiatives, Including:
- 400,000 barrels of storage capacity currently undergoing repurposing at IMTT expected to be re-contracted during November
- Three additional repositioning projects at IMTT worth $80.0 million approved
- Sale of Bayonne Energy Center (BEC) closed on October 12, 2018 - net proceeds used to reduce debt balances
- Sale process for majority of renewable power generation assets launched - 2Q’19 closing targeted
- Agreement on sale of design-build mechanical contractor, Critchfield Pacific, Inc. (CPI), reached - 4Q’18 closing anticipated
Macquarie Infrastructure Corporation (NYSE: MIC) reported financial and operational results for the third quarter of 2018 that were in line with expectations.
Net income decreased 40.9% to $21.4 million from $36.2 million in the third quarter of 2017 (the prior comparable period) primarily due to a write-down of its investment in CPI, increased costs related to acquisitions and higher interest expense, partially offset by lower taxes and a reduction in management fees. For the nine months ended September 30, 2018, net income increased 10.1% to $104.5 million versus the comparable period in 2017.
Adjusted Proportionately Combined EBITDA excluding non-cash items decreased by 5.1% to $175.5 million versus the prior comparable period reflecting primarily a forecast reduction in earnings at IMTT. For the nine months ended September 30, 2018, Adjusted Proportionately Combined EBITDA excluding non-cash items decreased by 3.0% to $525.0 million versus the comparable period in 2017.
Cash generated by operating activities decreased versus the prior comparable period to $147.1 million, with reduced earnings and higher interest expense and taxes partially offset by favorable movements in working capital.
Adjusted Free Cash Flow, which excludes certain one-time items such as transaction related costs, was $127.5 million, down 11.7% from $144.4 million in the prior comparable period as a result of increased interest expense, maintenance capital expenditures and taxes. For the nine months ended September 30, 2018, Adjusted Free Cash Flow decreased by 9.8% to $390.0 million versus the comparable period in 2017.
The MIC board of directors authorized a cash dividend of $1.00 per share, or $4.00 annualized, for the third quarter of 2018. The dividend will be payable on November 15, 2018 to shareholders of record on November 12, 2018. The Company reaffirmed its previous guidance for a distribution of $1.00 per share in each quarter of 2018.
The Company announced that Macquarie Infrastructure Management (USA) Inc., the external manager of MIC, has elected to waive certain fees to which it is entitled under a Management Services Agreement with MIC. The Manager has elected to waive base management fees in excess of 1% of MIC’s equity market capitalization, less cash on its balance sheet, and any fees on holding company debt.
The waivers reduce the annualized base management fees payable to the Manager by approximately $10.0 million compared with the fees payable for the third quarter of 2018. The Manager is expected to continue to reinvest its ongoing base management fees in new primary shares of the Company. The waivers are effective November 1, 2018 and, although they can be revoked, MIC believes that the Manager currently has no intention of doing so. The Manager is required to provide one year notice of revocation. The waivers have no impact on calculation of any performance fee to which the Manager may be entitled in the future.
Christopher Frost, MIC’s chief executive officer, said of the Company’s results for the quarter: "Our operating companies continued to perform as anticipated and we advanced a significant number of initiatives related to our strategic priorities. We are particularly pleased with the considerable progress being made on both the repurposing of storage capacity and repositioning of IMTT as well as the continued rationalization of our portfolio through sales of non-core operations. In addition, the proceeds from the timely completion of the sale of Bayonne Energy Center (BEC) have strengthened our balance sheet and provided us with considerable financial flexibility to support the ongoing growth of the enterprise.”
“MIC’s financial and operational performance also supported the authorization of a dividend of $1.00 per share for the third quarter consistent with our guidance. Assuming no material deterioration in the health of the economy, and the continued stable performance of our businesses, we remain confident in the sustainability of our dividend,” added Frost.
Third Quarter and Year to Date Results, by Segment
- IMTT generated Adjusted Proportionately Combined EBITDA excluding non-cash items of $69.3 million in the third quarter, down 12% versus the prior comparable quarter, primarily due an anticipated decline in capacity utilization and slightly lower average storage rates driven by rate decreases for gasoline and distillates in New York Harbor, compared with 2017. Bulk liquid storage utilization declined to an average of 82.1% in the quarter, consistent with prior guidance for a mid-80s percent average utilization rate in 2018, compared with 92.7% in the third quarter of 2017.
- Storage utilization at IMTT is expected to remain in the low 80s percent range through year-end 2018 before recovering to a low 90s percent range by early 2020, subject to market conditions. The contribution to Adjusted Proportionately Combined EBITDA excluding non-cash items from the anticipated recovery in utilization is expected to be partially offset by decreases in storage rates, particularly those for gasoline and distillates in New York Harbor, over the same period. Through the nine months ended September 30, 2018, Adjusted Proportionately Combined EBITDA excluding non-cash items generated by IMTT decreased to $221.5 million, down 9.4% versus the comparable period in 2017, as a result of lower earnings stemming from contract non-renewals and lower deferred revenue.
- Atlantic Aviation generated Adjusted Proportionately Combined EBITDA excluding non-cash items of $65.0 million in the third quarter, up 2.3% versus the prior comparable quarter, driven by contributions from acquisitions of fixed base operations and increased hangar rental income. The modest year over year increase reflects the absence of a number of events that were beneficial to Atlantic Aviation’s results in 2017 as well as airport-led runway maintenance and flight/landing restrictions at several of airports on which the business operates in 2018. Through the nine months ended September 30, 2018, Adjusted Proportionately Combined EBITDA excluding non-cash items generated by Atlantic Aviation increased to $196.2 million, up 5.6% compared with the same period in 2017.
- Contracted Power generated Adjusted Proportionately Combined EBITDA excluding non-cash items of $37.4 million in the third quarter, up 14.0% versus the prior comparable quarter, as a result of contributions related to the expansion of the BEC power generation facility (BEC II) and improved operating conditions for the Company’s portfolio of wind and solar power generation assets. Through the nine months ended September 30, 2018, Adjusted Proportionately Combined EBITDA excluding non-cash items generated by Contracted Power increased to $91.5 million, up 18.7% compared with the same period in 2017.
- MIC Hawaii generated EBITDA of $(5.1) million in the third quarter including $17.1 million of write-downs related to CPI and $12.0 million excluding those write-downs. The segment results reflect higher expenses at CPI and lower non-utility margins at Hawaii Gas partially offset by increased utility margins at Hawaii Gas as a result of a rate increase authorized under an interim Decision and Order from the Hawaii Public Utilities Commission in June. Through the nine months ended September 30, 2018, EBITDA generated by MIC Hawaii was $21.2 million and $38.3 million including and excluding the impact of the write-downs, respectively.
- MIC has entered into an agreement to sell CPI for a nominal amount in a transaction that is expected to close in the fourth quarter of 2018.
- The Company’s Corporate and Other segment includes primarily fees payable to the MIC’s Manager, professional fees and costs associated with being a public company. The segment generated Adjusted Proportionately Combined EBITDA excluding non-cash items of $(6.9) million, compared with $(6.1) million in the prior comparable quarter, primarily as a result of higher professional fees. Through the nine months ended September 30, 2018, Adjusted Proportionately Combined EBITDA excluding non-cash items generated by the Corporate and Other segment was flat with the same period in 2017.
Strategic Initiatives
Sale of Bayonne Energy Center
- Successful closing of the sale of BEC on October 12, 2018
- Receipt of $657.4 million in cash, transfer of $243.5 million of BEC debt to purchaser
- Net proceeds after transaction related expenses used to repay the majority of outstanding balances on revolving credit facilities
- Other than $150.0 million paid down at IMTT, revolving credit facilities may be redrawn to fund growth capital agenda
- Sale and debt repayment substantially improves balance sheet strength and financial flexibility
Repurposing of Existing Capacity at IMTT
- Repurposing up to 3.0 million barrels of storage capacity on the Lower Mississippi River
- Converting capacity away from heavy and residual oil to gasoline and distillates, chemicals and vegetable and/or tropical oils
- Approximately 1.3 million barrels of storage capacity being repurposed in 2018
- 600,000 repurposed barrels expected to be in service prior to year-end
Repositioning of IMTT with Additional Capacity and Capability
- Expect to deploy approximately $15.0 million in 2018 on projects that will add new storage capacity and/or improve terminal capability
- Expected to invest approximately $80.0 million in the additional capacity, dock and new truck rack capability
- Pending a final investment decision by Methanex on the development of additional methanol production capability (expected mid-2019), IMTT will construct 714,000 barrels of storage capacity at its Geismar Chemical Logistics facility for Methanex
- Committed to construction of an additional dock at its terminal in Geismar, LA to be in service in late 2019 supporting existing operations and potential expansion opportunities
- Committed to the construction of an automated, multi-user, six bay truck loading facility for petroleum and biodiesel products at its terminal in Bayonne, NJ to be in service in late 2019
Portfolio and Capital Management
- MIC expects to deploy approximately $200.0 million in 2018 on growth projects and “bolt-on” acquisitions and has deployed, or committed to deploy, approximately $130.0 million to date:
- Acquisition of a fixed base operation by Atlantic Aviation
- Completion of additional thermal power generating capacity at BEC
- Development of additional capacity and capability at IMTT
- MIC has exited certain smaller, non-core businesses in 2018 and has launched a process to sell the majority of its operating wind and solar facilities
- Sale and redeployment of proceeds from wind and solar facilities expected to maximize value relative to expanding portfolio through acquisition
- Company expects to retain its solar facility in Hawaii and to maintain existing relationships with developers of renewable power projects
- Sale process expected to conclude in the second quarter in 2019
- Including BEC, MIC has exited businesses and terminated projects that have generated more than $700 million in cash proceeds and deconsolidated $243.5 million of debt
- Transactions consistent with strategic priority of rationalizing portfolio, strengthening balance sheet and increasing financial flexibility
Segment EBITDA Guidance
MIC adjusted its guidance for the generation of Adjusted Proportionately Combined EBITDA excluding non-cash items in 2018 following the July 29 announcement of the sale of BEC and the expected early fourth quarter closing of the sale. Segment level Adjusted Proportionately Combined EBITDA excluding non-cash items guidance has been further refined to account for sales of other businesses and the receipt of the Company’s share of development profits related to a renewable power project.
MIC’s guidance for full-year Adjusted Proportionately Combined EBITDA excluding non-cash items from each of its IMTT, Atlantic Aviation and Corporate/Other segments is unchanged from the second quarter. MIC now expects the Adjusted Proportionately Combined EBITDA excluding non-cash items contribution from Contracted Power for the full year 2018 to increase to between $85.0 and $95.0 million from between $80.0 million and $90.0 million.
MIC Hawaii is expected to generate EBITDA of between $38.0 and $48.0 million including the impact of the write-down of the Company’s investment in CPI. Excluding the impact of the write-down, EBITDA is expected to be in a range of between $55.0 and $60.0 million.
MIC continues to expect that its businesses will generate aggregate Adjusted Proportionately Combined EBITDA excluding non-cash items for the full year 2018 of between $670.0 and $705.0 million.
