MIC reports second quarter 2020 financial and operational results

• Second quarter results reflect the impact of COVID-related travel and other restrictions on Atlantic Aviation and MIC Hawaii, offset by improved performance of International-Matex Tank Terminals
• General aviation flight activity increases from April lows through quarter end driving better than expected cash contribution from Atlantic Aviation
• Company remains confident in capital and liquidity position, ability to manage costs

Macquarie Infrastructure Corporation (NYSE: MIC) today announced its second quarter 2020 operational and financial results. The results reflect the ongoing impact of COVID-19 related travel restrictions, quarantines and event cancellations on the Company’s Atlantic Aviation and MIC Hawaii segments, partially offset by improved performance in its IMTT segment.

Christopher Frost, MIC’s Chief Executive Officer, said: “Our bulk liquid storage and handling business, IMTT, saw sustained high levels of storage utilization and generated year-on-year improvement in financial performance while a partial recovery in general aviation flight activity in the U.S. contributed to a better than anticipated result at Atlantic Aviation.

“We remain confident in the outlook for MIC and its operating businesses over the medium term despite the impact of COVID-19 on our results for the second quarter. Cost reduction initiatives implemented early in the quarter enabled us to achieve targeted levels of expense savings while continuing to provide a high level of service and support to our customers.”

Second Quarter 2020 Financial Results 

MIC reported a net loss from continuing operations of $8 million for the quarter, compared with net income of $6 million in the second quarter of 2019. The decrease reflects reduced revenue from each of Atlantic Aviation and MIC Hawaii. The reduced revenue was partially offset by lower expenses including fees payable to the Company’s external manager, lower unrealized losses on interest rate hedges and an income tax benefit.

Adjusted EBITDA excluding non-cash items from continuing operations totaled $87 million in the second quarter, down from $134 million in the prior comparable period. The decrease reflects the reduced contributions from each of Atlantic Aviation and MIC Hawaii, including a $7 million provision for estimated costs of remediating certain environmental matters recorded in selling, general and administrative expenses at Atlantic Aviation, partially offset by an increased contribution from IMTT.

MIC generated cash from operating activities of $73 million in the second quarter, down from $108 million in the prior comparable period. The decrease primarily reflects the reduced EBITDA excluding non-cash items generated by each of Atlantic Aviation and MIC Hawaii and declines in the amounts of products purchased and lower wholesale product prices, partially offset by declines in the amount of product sold and lower retail product prices.

The Company’s Adjusted Free Cash Flow from continuing operations totaled $46 million in the second quarter, down 48% from $88 million in the prior comparable period. The decrease reflects the reduction in Adjusted EBITDA excluding non-cash items and higher maintenance capital expenditures, partially offset by a current tax benefit.

Second Quarter 2020 Segment Results 

“The improved results at IMTT reflect an increase in demand for storage, particularly for petroleum products, together with a consistent level of uncontracted, ancillary services in the quarter,” said Frost.

• IMTT generated EBITDA excluding non-cash items of $68 million in the second quarter of 2020, up from $64 million in the prior comparable period. The improved operating results reflect higher average capacity utilization of 94.6% compared with 82.9% in the second quarter of 2019. Utilization at the end of the second quarter was 95.7%. Revenue from ancillary services including for throughput, blending, and heating was flat with the second quarter in 2019. Ancillary services generally comprise less than 20% of IMTT’s revenue.
  ge in timing versus 2019 as spending for the full year is expected to be broadly consistent with 2019.

• IMTT generated Free Cash Flow of $44 million in the quarter, down from $45 million in the prior comparable period, reflecting the increase in EBITDA excluding non-cash items offset by higher maintenance capital expenditures. The increase in maintenance capital expenditures reflects a change in timing versus 2019 as spending for the full year is expected to be broadly consistent with 2019.

“The partial recovery in general aviation flight activity in the quarter resulted in an increased contribution from Atlantic Aviation relative to the end of the first quarter. A lifting of lockdown measures in additional markets and a recovery in business oriented travel could increase flight activity, although the absence of most event-related and international travel together with increases in COVID-19 infections in certain states, could limit further recovery in 2020,” said Frost.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.

• Atlantic Aviation generated EBITDA excluding non-cash items of $17 million in the second quarter of 2020, down 73% from $62 million in the prior comparable period. The result for the quarter includes a provision for remediation of environmental matters of $7 million, net of insurance recoveries.

• Based on data published by the Federal Aviation Administration, U.S. domestic general aviation flight activity declined by an average of 46% during the quarter compared with the second quarter in 2019. General aviation flight activity at airports on which Atlantic Aviation operates declined by an average of 53% during the period. Flight activity across the Atlantic Aviation network was down 23% in June 2020 compared with June 2019 reflecting the substantial sequential recovery during the quarter. However, the amount of fuel sold during June was down 28% as shorter flights in smaller aircraft comprised a larger proportion of total activity. The change in mix of traffic and the associated decline in fuel sales was consistent with both the absence of any material international activity and the fact that the Atlantic Aviation network serves centers of economic activity and populous regions that have generally been subject to more stringent lockdowns associated with COVID-19.

• Free Cash Flow at Atlantic Aviation totaled $12 million for the quarter, down from $41 million in the prior comparable period primarily as a result of the decline in EBITDA excluding non-cash items, partially offset by an income tax benefit, lower cash interest expense and lower maintenance capital expenditures.

“Travel restrictions and rules requiring mandatory quarantining effectively eliminated tourism in Hawaii during the quarter and materially reduced demand for gas produced and/or distributed by Hawaii Gas,” said Frost.

• MIC Hawaii generated EBITDA excluding non-cash items of $7 million in the second quarter of 2020, down from $14 million in the prior comparable period. The decrease reflects an approximately 40% decline in gas consumption led by hotels and restaurants. Travel restrictions and mandatory quarantining reduced average daily visitor arrivals to Hawaii by over 95% versus the same period in 2019.

• MIC Hawaii generated Free Cash Flow of $3 million for the quarter, down from $10 million in the prior comparable period, as a result of the decrease in EBITDA excluding non-cash items and higher income taxes, partially offset by lower maintenance capital expenditures.

MIC’s Corporate and Other segment includes costs of managing the public company, interest expense associated with holding company level debt facilities and expenses related to its pursuit of strategic alternatives.

• Holding company level cash interest expense increased to $6 million for the quarter from $4 million in the prior comparable period due to the Company having drawn $599 million on its revolving credit facility in March. The increase was partially offset by the repayment of a $350 million tranche of holding company Convertible Senior Notes in July 2019 and higher interest income in the prior comparable period.

• Fees payable to MIC’s external manager are a fixed percentage of its market capitalization less cash at the holding company level. Base management fees decreased to $4 million from $7 million in the prior comparable period with the decline in MIC’s market capitalization and the increase in the amount of cash held on its balance sheet.

Balance Sheet Strength and Flexibility

MIC’s aggregate leverage ratio increased to approximately 4.8 times net debt/Adjusted EBITDA excluding non-cash items (trailing twelve-month basis) on June 30, 2020. The Company expects its leverage ratio to increase through the remainder of the year based on the impact of COVID-19 on its financial performance and its use of a portion of its current cash balance to fund growth projects. MIC expects to deploy cash of between $200 and $225 million on projects to which it is contractually obligated. Through June 30, the Company had deployed $119 million in growth projects. The use of cash is expected to be partially offset by incremental EBITDA generated by the projects completed during the year.

“Our current cash balances, excluding drawings on our revolving credit facility, together with the cash we believe our businesses will generate over the remainder of the year, are expected to fund our ongoing operations and allow us to meet all of our financial obligations,” noted Frost.

Strategic Alternatives

On October 31, 2019, MIC announced that it was pursuing strategic alternatives including the sale of the Company or one or more of its operating businesses as a means of unlocking value. During the second quarter, the Company continued to actively pursue these alternatives although travel and other restrictions on interactions imposed by COVID-19 slowed the process, as expected.  

“While the timeline for the process has been extended due to COVID-19, we remain committed to unlocking value for shareholders through a sale or sales,” said Frost.