MIC Reports Second Quarter 2018 Financial Results, Cash Dividend Of $1.00 Per Share

NEW YORK, Aug. 1, 2018 /PRNewswire/ -- Macquarie Infrastructure Corporation (NYSE: MIC) reported its financial results for the second quarter of 2018 in line with expectations.

Net income increased 39.4% to $36.3 million from $26.0 million in the second quarter of 2017 (the prior comparable period) on unrealized gains on derivative instruments (versus losses in 2017), a reduction in management fees and lower taxes.

Adjusted Proportionately Combined EBITDA excluding non-cash items of $170.8 million was down 2.9% versus the prior comparable period reflecting primarily a reduced contribution from IMTT, as forecast.

Cash generated by operating activities was flat with the prior comparable period at $121.9 million, with higher interest and tax expenses offset by favorable movements in working capital.

Adjusted Free Cash Flow, which excludes certain one-time items including transaction related costs, was $126.6 million, down 10.3% from $141.1 million in the prior comparable period on increased interest expense, taxes and maintenance capital expenditures.

The MIC board of directors authorized a cash dividend of $1.00 per share, or $4.00 annualized, for the second quarter of 2018. The dividend will be payable on August 16, 2018 to shareholders of record on August 13, 2018. The Company reaffirmed its previous guidance for a distribution of $1.00 per share in each quarter of 2018.

Christopher Frost, MIC chief executive officer, said: "We are pleased with the progress on our strategic priorities, particularly the sale of BEC and momentum in repurposing and repositioning initiatives at IMTT. MIC's financial results for the second quarter continue to demonstrate the underlying strength and resilience of our businesses." 

"MIC's financial and operational performance was consistent with our guidance for the year and supported the authorization of a dividend of $1.00 per share. We remain confident in the sustainability of our dividend at the current level and the prospect of dividend growth over the medium term," added Frost.

Second Quarter Segment Results 

• IMTT generated EBITDA of $74.0 million, a decrease of 10% on the prior comparable period, primarily due to the deferred revenue recognized in connection with the cancellation of a construction project in June of 2017 and the forecasted temporary decline in capacity utilization. Consistent with prior guidance, storage utilization declined to 86.1% in the quarter compared with 94.0% in the prior comparable period. MIC expects utilization to decline to the low 80s percent range before recovering to the low 90s percent range in 2020, subject to market conditions.
  
  
• Atlantic Aviation generated EBITDA of $60.3 million, an increase of 5.1% over the prior comparable period, driven by growth in general aviation flight activity and contributions from acquired fixed base operations.
  
  
• Contracted Power generated EBITDA of $33.1 million, up 20.1% on the prior comparable period, on fees received from a developer of renewable power projects, improved wind resources and increased tariff-based revenue from the thermal power generation facility.
  
  
• MIC Hawaii generated EBITDA of $11.5 million, down 21.4% on the prior comparable period, primarily driven by higher expenses related to the Company's design-build mechanical contractor and the Hawaii Gas rate case. A portion of the increased costs at Hawaii Gas are expected to be recovered in rates that were approved by the Hawaii Public Utilities Commission in an Interim Decision and Order issued on June 27, 2018. The new rates were implemented on July 1, 2018. MIC expects an increase in regulated revenue at Hawaii Gas of approximately $8.9 million per year.

Strategic Initiatives

Sale of Bayonne Energy Center (BEC)

On July 29, 2018 MIC announced that it had entered into an agreement to sell 100% of BEC to NHIP II Bayonne Holdings LLC for $900 million in cash and assumed debt. Closing of the transaction is subject to receipt of customary approvals from the New York Public Service Commission and the Federal Energy Regulatory Commission, among others, and is expected to occur in the fourth quarter of 2018.

The debt balance outstanding at BEC at closing is expected to be $243.5 million. MIC anticipates using part of the net proceeds of approximately $650 million, after transaction fees and expenses, to reduce debt including $150 million outstanding on the revolving credit facility at the Company's IMTT business. MIC expects its ratio of net debt to EBITDA to be less than 4.5 times at year end 2018.

Proceeds not used to reduce debt will be available to fund a portion of MIC's planned growth capital deployments. The MIC Board will consider options for returning any excess capital to shareholders.

MIC expects the taxable gain from the sale of BEC to utilize the majority of its federal prior year Net Operating Loss carry-forward although the Company expects to be able to offset future federal taxable income with the tax benefits associated with capital deployments.

IMTT Repurposing and Repositioning

As previously announced, MIC is undertaking initiatives related to the repurposing of certain IMTT storage assets and repositioning portions of the business in response to shifts in global demand and trade flows impacting IMTT.

• Repurposing Existing Capacity
  
  
  IMTT anticipates repurposing up to three million barrels of storage capacity on the Lower Mississippi River away from primarily heavy and residual oils to gasoline and distillates, chemicals and vegetable and/or tropical oils. Capacity utilization at IMTT is expected to average in the mid-80s percent range in 2018 and to increase to the low 90s percent range in 2020, both subject to market conditions. Capacity utilization averaged 86.1% during the second quarter and 84.8% during June.
  
  
  Approximately 1.3 million barrels of IMTT storage capacity is currently being repurposed. Of that, 500,000 barrels were contracted in the second quarter and an additional 370,000 barrels were contracted in the third quarter. IMTT expects to invest approximately $15 million in the repurposing of storage capacity in 2018 and had deployed approximately $2.8 million through June.
  
  
• Repositioning, Creating Additional Capacity and Capability
  
  
  IMTT expects to deploy an additional approximately $15 million in 2018 on projects that will develop new storage capacity and/or improve terminal (primarily pipeline) connectivity. In July, repositioning activities included the negotiation and signing of an agreement with a chemicals manufacturer for the construction of approximately 200,000 barrels of new capacity and related eight year storage contract. The project is expected to be completed in late 2019 and require an investment of approximately $20.0 million.

Portfolio and Capital Management

In its results release for the first quarter of 2018 MIC noted that it expected to deploy approximately $300 million during the year on a combination of growth projects and "bolt-on" acquisitions and to exit certain smaller, non-core businesses. To date, the Company has deployed, or committed to deploy, approximately $200 million including in the acquisition (on-field consolidation) of a fixed base operation by Atlantic Aviation in January 2018, the completion of the development of additional power generating capacity prior to the sale of BEC and the development of additional capacity and capability at IMTT.

Including a previously announced sale of IMTT subsidiary OMI Environmental Solutions, Inc., through June 30, 2018, MIC has exited businesses and terminated projects that have generated an aggregate approximately $40 million of cash proceeds.

Segment EBITDA Guidance

MIC adjusted its prior guidance for the generation of EBITDA in 2018 to reflect primarily the expected early fourth quarter closing of the sale of BEC. As a result, the expected contribution from Contracted Power has been reduced by $10 to $15 million to a range of $80 to $90 million. The Company also increased its estimate of expenses incurred in its Corporate/Other segment by $5 million to reflect the expected higher cost of advisory services incurred in connection with addressing shareholder matters.

Conference Call and Webcast

When: MIC has scheduled a conference call for 8:00 a.m. Eastern Time on Thursday, August 2, 2018 during which management will review and comment on the second quarter 2018 results.

How: To listen to the conference call dial +1(650) 521-5252 or +1(877) 852-2928 at least 10 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 materials 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 2, 2018 through midnight on August 8, 2018, at +1(404) 537-3406 or +1(855) 859-2056, Passcode: 7635099. An online archive of the webcast will be available on the Company's website for one year following the call.

About MIC

MIC owns and operates a diversified group of businesses providing basic services to customers in the United States. Its businesses consist of a bulk liquid terminals business, International-Matex Tank Terminals; an airport services business, Atlantic Aviation; entities comprising an energy services, production and distribution segment, MIC Hawaii; and entities comprising a Contracted Power segment. For additional information, please visit the MIC website at www.macquarie.com/mic. MIC-G

Use of Non-GAAP Measures

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics

In addition to MIC's results under U.S. GAAP, the Company uses certain non-GAAP measures to assess the performance and prospects of its businesses. In particular, MIC uses EBITDA excluding non-cash items, Free Cash Flow and certain proportionately combined financial metrics. Proportionately combined financial metrics, including Free Cash Flow, reflect MIC's proportionate interest in its wind and solar facilities.

MIC measures EBITDA excluding non-cash items as a reflection of its businesses' ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses. The Company believes investors use EBITDA excluding non-cash items primarily as a measure to assess the operating performance of its businesses and to make comparisons with the operating performance of other businesses whose depreciation and amortization expense may vary widely from MIC's, particularly where acquisitions and other non-operating factors are involved. MIC defines EBITDA excluding non-cash items as net income (loss) or earnings —the most comparable GAAP measure— before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense reflected in the statements of operations. EBITDA excluding non-cash items also excludes base management fees and performance fees, if any, whether paid in cash or stock.

Given MIC's varied ownership levels in its CP and MIC Hawaii segments, together with obligations to report the results of these businesses on a consolidated basis, GAAP measures such as net income (loss) do not fully reflect all of the items management considers in assessing the amount of cash generated based on its ownership interest in its businesses. The Company notes that the proportionately combined metrics used may be calculated in a different manner by other companies and may limit their usefulness as a comparative measure. Therefore, proportionately combined metrics should be used as a supplemental measure to help understand MIC's financial performance and not in lieu of financial results reported under GAAP.

The Company's businesses can be characterized as owners of high-value, long-lived assets capable of generating substantial Free Cash Flow. MIC defines Free Cash Flow as cash from operating activities —the most comparable GAAP measure — which includes cash interest, tax payments and pension contributions, less maintenance capital expenditures, which includes principal repayments on capital lease obligations used to fund maintenance capital expenditures, and excludes changes in working capital.

Management uses Free Cash Flow as a measure of its ability to provide investors with an attractive risk-adjusted return by sustaining and potentially increasing MIC's quarterly cash dividend and funding a portion of the Company's growth. GAAP metrics such as net income (loss) do not provide MIC management with the same level of visibility to into the performance and prospects of the business as a result of: (i) the capital intensive nature of MIC's businesses and the generation of non-cash depreciation and amortization; (ii) shares issued to the Company's external manager under the Management Services Agreement, (iii) the Company's ability to defer all or a portion of current federal income taxes; (iv) non-cash unrealized gains or losses on derivative instruments; (v) amortization of tolling liabilities; (vi) gains (losses) on disposal of assets, and (vii) pension expense. Pension expenses primarily consist of interest expense, expected return on plan assets and amortization of actuarial and performance gains and losses. Any cash contributions to pension plans are reflected as a reduction to Free Cash Flow and are not included in pension expense. Management believes that external consumers of its financial statements, including investors and research analysts, use Free Cash Flow both to assess the Company's performance and as an indicator of its success in generating an attractive risk-adjusted return.

In its Quarterly Report on Form 10-Q, the Company has disclosed Free Cash Flow on a consolidated basis and for each of its operating segments and MIC Corporate. Management believes that both EBITDA excluding non-cash items and Free Cash Flow support a more complete and accurate understanding of the financial and operating performance of its businesses than would otherwise be achieved using GAAP results alone.

Free Cash Flow does not take into consideration required payments on indebtedness and other fixed obligations or other cash items that are excluded from MIC's definition of Free Cash Flow. Management notes that Free Cash Flow may be calculated differently by other companies thereby limiting its usefulness as a comparative measure. Free Cash Flow should be used as a supplemental measure to help understand MIC's financial performance and not in lieu of its financial results reported under GAAP.

See tables below for a reconciliation of EBITDA excluding non-cash items and EBITDA excluding non-cash items, to Net Income (loss) and a reconciliation of Free Cash Flow to cash from operating activities.

Classification of Maintenance Capital Expenditures and Growth Capital Expenditures

MIC categorizes capital expenditures as either maintenance capital expenditures or growth capital expenditures. As neither maintenance capital expenditure nor growth capital expenditure is a GAAP term, the Company has adopted a framework to categorize specific capital expenditures. In broad terms, maintenance capital expenditures primarily maintain MIC's businesses at current levels of operations, capability, profitability or cash flow, while growth capital expenditures primarily provide new or enhanced levels of operations, capability, profitability or cash flow. Management considers a number of factors in determining whether a specific capital expenditure will be classified as maintenance or growth.

In some cases, specific capital expenditures contain characteristics of both maintenance and growth capital expenditures. MIC does not bifurcate specific capital expenditures into growth and maintenance components. Each discrete capital expenditure is considered within the above framework and the entire capital expenditure is classified as either maintenance or growth.

Forward-Looking Statements

This press release contains forward-looking statements. MIC may, in some cases, use words such as "project", "believe", "anticipate", "plan", "expect", "estimate", "intend", "should", "would", "could", "potentially", or "may" or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this release are subject to a number of risks and uncertainties, some of which are beyond MIC's control including, among other things: changes in general economic or business conditions; its ability to service, comply with the terms of and refinance debt, successfully integrate and manage acquired businesses, retain or replace qualified employees, manage growth, make and finance future acquisitions, and implement its strategy; risks associated with development, investment and expansion in the power industry; its regulatory environment establishing rate structures and monitoring quality of service; demographic trends, the political environment, the economy, tourism, construction and transportation costs, air travel, environmental costs and risks; fuel and gas and other commodity costs; its ability to recover increases in costs from customers, cybersecurity risks, work interruptions or other labor stoppages; risks associated with acquisitions or dispositions, litigation risks; risks related to its shared services initiative; reliance on sole or limited source suppliers, risks or conflicts of interests involving its relationship with the Macquarie Group and changes in U.S. federal tax law.

MIC's actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which MIC is not currently aware could also cause its actual results to differ. In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this release may not occur. These forward-looking statements are made as of the date of this release. MIC undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.MIC is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of MIC do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of MIC.