MIC Reports First Quarter 2020 Financial and Operational Results

Results from continuing operations for the first quarter of 2020 compared with the first quarter of 2019 reflect:

• A downturn in activity at Atlantic Aviation and MIC Hawaii commencing in the second half of March as a result of the implementation of travel restrictions related to the outbreak of COVID-19, partially offset by improved performance at IMTT as a result of increased demand for petroleum storage and the recognition of fees earned from customers for tank cleaning
• The absence of a one-time $39 million contract termination payment received by IMTT in the first quarter of 2019

Macquarie Infrastructure Corporation (NYSE: MIC) today announced its first quarter 2020 operational and financial results. The first quarter results reflect the stable performance of its operating businesses through the first ten weeks of the quarter and a sharp decline in Atlantic Aviation and MIC Hawaii’s performance in the last two weeks as a result of the implementation of travel, public gathering and other restrictions to combat the outbreak of COVID-19.

The impact of the COVID-19 pandemic on Atlantic Aviation and MIC Hawaii was partially offset by improved performance by International-Matex Tank Terminals (“IMTT”), excluding the impact of an approximately $39 million contract termination payment (“termination fee”) received in the first quarter of 2019 (“the prior comparable period”). IMTT benefited from the recognition of $15 million in fees from customers for tank cleaning and higher utilization driven by increased demand for storage of petroleum and other liquids.

MIC’s Chief Executive Officer, Christopher Frost, said: “I am very proud of our team’s efforts and appreciate their commitment to ensuring that the essential services our businesses provide continue to be delivered safely and efficiently as we navigate the unprecedented challenges of the COVID-19 pandemic. We remain focused on ensuring the health and safety of our employees and customers, while maintaining business continuity.”

MIC reported net income from continuing operations of $11 million, down 83% compared with the first quarter of 2019. This decrease reflects the absence of the termination fee at IMTT, reduced sales activity at Atlantic Aviation and MIC Hawaii and increased general and administrative expenses primarily related to MIC’s pursuit of strategic alternatives.

Adjusted EBITDA excluding non-cash items from continuing operations totaled $152 million for the quarter, down 25% versus the prior comparable period or 7% excluding the termination fee. The decrease reflects the reductions in contributions from each of Atlantic Aviation and MIC Hawaii and costs recorded in Corporate and Other related to MIC's pursuit of strategic alternatives, partially offset by the larger contribution from IMTT, excluding the 2019 termination fee.

MIC generated cash from operating activities of $99 million for the quarter, a decrease of 34% versus the prior comparable period. The decrease primarily reflects the reduction in EBITDA and declines in the amounts of products purchased and lower wholesale product prices, partially offset by declines in the amount of products sold and lower retail product prices.

The Company’s Adjusted Free Cash Flow from continuing operations totaled $104 million, down 34% versus the prior comparable period or 13% excluding the termination fee. The decrease reflects the reduction in EBITDA, higher maintenance capital expenditures and cash interest.

Actions Related to COVID-19

In response to the impact of COVID-19 and the uncertainty around when travel and other restrictions may be eased, MIC’s businesses have taken decisive steps to reduce operating expenses and maintain strong cash positions. These include furloughing a small number of employees and reducing scheduled work hours, eliminating certain non-payroll expenses, deferring maintenance capital expenditures unrelated to health and safety and reducing general and administrative expenses.

To preserve value and ensure the continued safe operation of its businesses through the pandemic, MIC has also sought to retain and increase its available cash where appropriate. In mid-March the Company announced that it had drawn $599 million on its holding company revolving credit facility and $275 million on the revolving credit facility at Atlantic Aviation. The drawn cash added to the Company’s approximately $300 million of cash on hand.

MIC has since repaid and terminated the revolving credit facility at Atlantic Aviation (other than with respect to a $10 million commitment, currently undrawn, in place solely in support of outstanding letters of credit). The amendment of the revolving credit facility de-risks the Company’s investment in Atlantic Aviation by eliminating any ongoing leverage-based maintenance covenant from the business’ debt package. As a result, MIC currently has cash on hand of approximately $870 million.

In addition to drawing on credit facilities, on April 2, 2020, MIC announced that it was suspending its quarterly cash dividend as a means of retaining cash. The Company will retain approximately $260 million should the suspension remain in place through 2020. MIC notes that it has no immediate need for the additional liquidity and that these measures are prudent and strictly precautionary given the uncertainty surrounding the impact of COVID-19 on the Company’s businesses and the absence of visibility into an easing of travel restrictions and economic recovery.

As an additional precaution, the MIC Board has established an Executive Committee ("the Committee") comprising the Chairman (or alternate), the Chief Executive Officer (or alternate) and one of the independent members of the board (or alternate) to exercise all powers and authority of the board when the board is not in session or in the event one or more of its members are incapacitated. Decisions of the Committee require the approval of a majority of its independent members, and a majority of the Committee's independent members may refer any matter to the full board for determination. The Committee does not have powers that, under Delaware corporate law, cannot be delegated including approving a sale of the Company. In addition, the Committee may not, among other things, reinstate or declare a dividend or amend or terminate the Company's Disposition Agreement with its Manager, Macquarie Infrastructure Management (USA), Inc.

First Quarter 2020 Segment Results and Outlook

“Atlantic Aviation performed well through the first ten weeks of the year consistent with the increases in general aviation flight activity reported by the Federal Aviation Administration although stay-at-home orders and other travel restrictions have reduced average daily flight activity substantially from mid-March. Similarly, travel restrictions and mandatory quarantines have all but eliminated visitors to Hawaii. The impact on Hawaii’s hotels and restaurants has materially reduced demand for gas produced and distributed by Hawaii Gas.

• “IMTT performed well with demand for storage of petroleum and liquid chemical products increasing materially during the quarter. Storage utilization is expected to increase to over 95% by mid-May from 86% at the end of 2019 with the incremental leases having an average duration of approximately one year,” said Frost. “Nearly all leasable capacity is now under contract.”

  • IMTT generated EBITDA excluding non-cash items of $77 million in the first quarter of 2020, down 26% versus the prior comparable period. Excluding the termination fee, EBITDA would have increased by 18%. The improved operating results reflect the recognition of tank cleaning fees from customers and higher average capacity utilization in the quarter of 85.4% compared with 82.5% in the first quarter of 2019.

• Atlantic Aviation generated EBITDA excluding non-cash items of $66 million in the first quarter of 2020, down 16% versus the prior comparable period. General aviation flight activity declined by approximately 80% at the end of March compared with the same period in 2019 and has remained at similarly reduced levels through April.

  • Although approximately 20% of Atlantic Aviation’s gross profit is generated from base tenant hangar rental, most of the business’ top line is correlated with the level of general aviation flight activity in the U.S. Given the uncertainty around the duration of travel and other restrictions and the rate at which they will be lifted, the status of commercial aviation and consumer travel preferences post-COVID-19, it is not possible to accurately forecast the financial performance of Atlantic Aviation in 2020 at this time. The Company notes that under any scenario the result is expected to be below the guidance (since withdrawn) it provided to the market in February.

• MIC Hawaii generated EBITDA excluding non-cash items of $15 million in the first quarter of 2020, down 25% versus the prior comparable period. The decrease primarily reflects realized hedge losses as a result of a decline in propane prices and the impact of reduced consumption of gas by commercial customers such as hotels and restaurants in the second half of March. Travel and other restrictions have reduced average daily visitor arrivals to Hawaii by over 95%.

  • Commercial and industrial gas consumption (including by hotels and restaurants) is expected to remain low, while residential consumption is expected to remain largely intact for as long as travel and other restrictions remain in effect resulting in an aggregate decline in total gas sales of between 30% and 40%. Given the uncertainty around the duration of travel restrictions and the rate at which they will be lifted, the status of commercial aviation and consumer travel preferences post-COVID-19, it is not possible to accurately forecast the financial performance of MIC Hawaii in 2020 at this time. The Company notes that under any scenario the result is expected to be below the guidance (since withdrawn) it provided to the market in February.

• MIC’s Corporate and Other segment includes primarily interest expense on holding company level debt, fees payable to the Company’s external manager and public company expenses, offset in the prior comparable period by income from a relationship with a developer of renewable power generation opportunities. The relationship with the developer was concluded in July of 2019. The increase in general and administrative expenses the first quarter of 2020 reflects primarily costs incurred in connection with the Company’s pursuit of strategic alternatives.

Balance Sheet Strength and Flexibility

MIC’s results from ongoing operations in the first quarter increased the Company’s aggregate leverage to approximately 4.3x net debt/Adjusted EBITDA excluding non-cash items (trailing twelve-month basis) at March 31, 2020. Additional reductions in trailing twelve-month EBITDA related to the expected decrease in contributions from Atlantic Aviation and MIC Hawaii, along with MIC’s use of cash to fund growth investments, is likely to result in a further increase in leverage during the year. MIC continues to forecast deployment of growth capital of between $200 and $225 million across its portfolio in 2020 to projects which it has previously committed.

“We believe that the continued funding of growth projects is prudent from the standpoint of meeting our contractual obligations to our customers and ensures that we will benefit from the incremental earnings they are expected to generate,” noted Frost. “The Company’s current cash balance and the additional funds we expect to retain from the suspension of our dividend, combined with the cash generated by our ongoing operations, is anticipated to fund operations and meet our financial obligations over the course of the year.”

Strategic Alternatives

On October 31, 2019, MIC announced its intention to pursue strategic alternatives for the Company and has since been actively engaged in processes that could result in the sale of the Company or one or more of its operating businesses. MIC continues to believe that this course of action will ultimately maximize value for shareholders and it intends to move forward with these alternatives, although recent volatility in the capital markets and the limitations of travel bans and other restrictions on interactions imposed by COVID-19 are expected to slow the process. The measures undertaken to date, including the suspension of the quarterly dividend, will provide MIC with additional financial flexibility to proceed with such processes in a manner consistent with maximizing value for shareholders.

“We remain confident that there is a significant opportunity to unlock value for our shareholders through a sale of the Company or one or more of our businesses and we are continuing to pursue all opportunities that we believe could be in the best interests of the Company and its shareholders,” said Frost.