MIC reports second quarter 2019 financial and operational results

• Results from operating businesses broadly in line with management's expectations
• Quarterly cash dividend of $1.00 per share authorized
• Average storage utilization at IMTT increased sequentially to 82.9% in the second quarter of 2019; current utilization approximately 83.5%
• Stable GA flight activity supports improved contribution by Atlantic Aviation
• 2018 rate case, sale of mechanical contractor business improved results at MIC Hawaii
• Sales of operating wind portfolio, all but one facility in operating solar portfolio and majority interest in solar development business closed in July; substantially completes exit of smaller and non-core businesses
• Leverage reduced to 3.6x net debt / EBITDA proforma for net sale proceeds, deconsolidation of debt
• $350 million of 2.875% Convertible Senior Notes repaid at maturity on July 15, 2019
• Full year 2019 EBITDA and Free Cash Flow guidance for operating businesses reaffirmed, revised lower for Corporate and Other segment
• Guidance for growth capital deployment reduced as historically high water level slows projects on Mississippi River

Macquarie Infrastructure Corporation (NYSE: MIC) today announced its second quarter 2019 financial results including the generation of net income from continuing operations of $6 million, down 78% versus the second quarter in 2018 (prior comparable period). The decline in net income was driven by a reduction in revenue and higher interest expense comprising largely non-cash changes in the fair value of interest rate hedging instruments, partially offset by a reduction in costs including fees to MIC’s external manager.

The decline in revenue to $416 million from $436 million primarily reflects a previously reported reduction in storage utilization at the Company’s bulk liquid storage terminal business, International-Matex Tank Terminals (“IMTT”), and the absence of revenue from businesses that were sold in 2018. The decline was partially offset by revenue growth at the Company’s aviation services business, Atlantic Aviation, as a result of increases in the volume of jet fuel sold and hangar rental revenue.

Overall expenses declined primarily due to lower cost of services, partially offset by an increase in selling, general and administrative expenses. Selling, general and administrative expenses were higher as a result of higher professional services fees and increases in salaries and benefits primarily related to the implementation of new long-term incentive plans for senior management of MIC's operating businesses. The expenses recorded in connection with the incentive plans are non-cash accruals that are expected to be settled with the issuance of MIC shares, subject to plan participants exceeding performance hurdles.

Reported interest expense increased to $46 million from $25 million in the prior comparable period as a result of non-cash losses on interest rate hedges in 2019 and higher debt balances. Excluding the derivative losses, cash interest rose to $31 million from $25 million primarily as a result of an increase in the debt balance outstanding at Atlantic Aviation. A portion of the proceeds from the increase were used to fully repay a tranche of holding company level Convertible Senior Notes in July 2019.

Fees payable to MIC’s external manager declined to $7 million from $11 million as a result of the manager’s waiver in November 2018 of certain elements of the base management fee to which it was otherwise entitled and a decline in the market capitalization of the Company.

MIC reported Adjusted EBITDA excluding non-cash items from continuing operations of $134 million, down 8% versus the prior comparable period. The reduced earnings contribution from IMTT was partially offset by improved results at each of Atlantic Aviation and MIC Hawaii.

Cash generated by operating activities during the quarter ended June 30, 2019 declined 6% to $108 million versus the prior comparable period, primarily due to lower earnings and a higher interest expense, partially offset by favorable movements in working capital and lower taxes.

Adjusted Free Cash Flow from continuing operations was $88 million, down 19% versus the prior comparable period. The result reflects the lower reported EBITDA as well as increases in interest expense and maintenance capital expenditures, partially offset by lower cash taxes.

MIC’s Chief Executive Officer, Christopher Frost, said: “MIC’s results for the second quarter of 2019 were largely consistent with our guidance and reflect both the importance of a diversified portfolio of infrastructure businesses as well as the effective execution of our strategy, particularly with respect to streamlining our portfolio and strengthening our balance sheet.”

“Atlantic Aviation and MIC Hawaii continued to perform well and offset the majority of the year on year decrease in the contribution from IMTT; Atlantic Aviation's results benefitted from stable general aviation flight activity and improved margins on fuel sales; results for IMTT were consistent with our expectations and we have been pleased with the level of interest in contracting for bulk liquid storage and logistics services, particularly along the Lower Mississippi River; MIC Hawaii’s contribution reflects the implementation of new utility rates in July 2018 and the essential services nature of that business. Collectively, the underlying performance of our businesses was solid, as anticipated,” Frost added.

In July 2019, MIC successfully closed on the sales of its operating wind power portfolio, all but one of the facilities in its operating solar power portfolio and its majority interest in a developer of solar projects. The sale of the remaining solar facility is expected to close in early August 2019. Following the final closing, the sales will have generated total gross proceeds of approximately $276 million and MIC will have deconsolidated approximately $297 million of debt. The net proceeds, after transaction fees and taxes, are expected to be used to fund a portion of future growth projects across MIC’s portfolio. The sales substantially complete efforts by the Company to exit smaller and non-core businesses.

At maturity on July 15, 2019, MIC repaid the entirety of a $350 million tranche of 2.875% Convertible Senior Notes outstanding using cash on hand. Together with the effects of the sales of its renewable power businesses, MIC’s gross debt was reduced to approximately $2.7 billion at July 31, 2019 and its proforma leverage ratio was reduced to 3.6x net debt / EBITDA.

MIC currently expects to deploy between $250 and $275 million of capital in support of growth projects across its businesses in 2019. The forecast range was reduced from between $275 and $300 million as a consequence of work on certain projects at IMTT’s Louisiana terminals having been slowed by the historically high level of the Mississippi River. The delays are not expected to have a material impact on MIC’s financial results for 2019 as the effected projects would not have been completed until late 2019 and early 2020. MIC deployed $91 million of growth capital through the end of the second quarter.

Based on its financial and operating results for the quarter, MIC reaffirmed its full-year 2019 guidance for its operating businesses and revised guidance for its Corporate and Other segment lower by $10 million. The forecast increase in Corporate and Other expenses reflects the earlier than anticipated conclusion of a relationship with a developer of solar power projects, ongoing litigation costs and professional services fees including consulting fees incurred in conjunction with an evaluation of opportunities for improved efficiencies. In total, the Company currently expects to generate between $600 and $625 million of Adjusted EBITDA excluding non-cash items.

Reflective of the increased corporate expenses, MIC also reduced its guidance for the generation of Adjusted Free Cash Flow to a range of $390 and $435 million in 2019.

With respect to the Company’s guidance for EBITDA and Free Cash Flow in 2019, a reconciliation of EBITDA to net income (loss), the most comparable GAAP measure and a reconciliation of Free Cash Flow to cash from operating activities, the most comparable GAAP measure, are not available without unreasonable effort due to the Company’s limited visibility into and inability to make accurate projections and estimates of items including management fees, hedging agreements, depreciation and any (benefit) provision for income taxes. These items may vary greatly from year to year and could significantly impact MIC’s results as reported in accordance with GAAP.

Second Quarter 2019 Segment Results:

Each of MIC’s operating businesses reported an increase in selling, general and administrative expenses related to the implementation of a new, long-term incentive compensation program for senior management of its operating businesses. The expenses are non-cash but serve to reduce reported net income by $1 million in total.

• IMTT generated EBITDA of $64 million, down 14% compared with the second quarter in 2018 primarily as a result of the reduction in average capacity utilization to 82.9% from 86.1% in the prior comparable period and higher selling, general and administrative expenses. IMTT contracted storage capacity for petroleum products on the Lower Mississippi River during the quarter and customer inquiries regarding storage related to the implementation of IMO 2020 on January 1, 2020 have increased.

  IMTT currently believes that storage utilization rates will average in the low- to mid-80s percent range in 2019. Storage utilization is expected to be in the mid- to high-80s percent range at year end.

• Atlantic Aviation generated EBITDA of $62 million, up 3% versus the prior comparable period. Increases in fuel sales and hangar rental revenue were partially offset by higher salaries and benefits as well as repairs and maintenance. General aviation flight activity, as reported by the Federal Aviation Administration, was flat in the second quarter of 2019 compared with the same period in 2018.
• MIC Hawaii generated EBITDA of $14 million, up 27% compared with the second quarter in 2018, as a result of the implementation of new utility rates in July 2018 and the absence of losses related to a business that was sold in November 2018. The gains were partially offset by a decline in the volume of gas products sold.
• MIC’s Corporate and Other segment recorded increased professional services fees and a reduction in income from a relationship with a developer of solar power projects. These resulted in a decrease in segment EBITDA to ($8) million for the quarter compared with ($4) million in the prior comparable period. The relationship with the solar project developer was concluded in July 2019.

Second Quarter 2019 Dividend:

The MIC board of directors authorized a cash dividend of $1.00 per share, or $4.00 annualized, for the second quarter of 2019 consistent with guidance provided to the market in February 2019. The dividend will be payable August 15, 2019 to shareholders of record on August 12, 2019 and together with the first quarter dividend paid in May represents a distribution of approximately 70% of MIC’s Adjusted Free Cash Flow from continuing operations year to date.

MIC reaffirmed its previous guidance for a distribution of $1.00 per share in each of the third and fourth quarters in 2019. The Company expects to distribute approximately 83.5% of its Adjusted Free Cash Flow for the full year as dividends.

Conference Call and Webcast:

When: MIC has scheduled a conference call for 8:00 a.m. Eastern Time on Thursday, August 1, 2019 during which management will review and comment on the second quarter 2019 results.

How: To listen to the conference call dial +1(650) 521-5252 or +1(877) 852-2928 at least ten minutes prior to the scheduled start time. A webcast of the call will be accessible via the Company’s website at www.macquarie.com/mic. Allow extra time prior to the call to visit the site and download the software needed to listen to the webcast.

Supplemental Materials: MIC will prepare slides in support of its conference call. The materials will be available for downloading from the Company’s website prior to the call.

Replay: For interested individuals unable to participate in the live conference call, a replay will be available after 2:00 p.m. on August 1, 2019 through midnight on August 7, 2019, at +1(404) 537-3406 or +1(855) 859-2056, Passcode: 4966803. An online archive of the webcast will be available on the Company’s website for one year following the call.