FTAI Infrastructure Inc.

and welcome to the fourth quarter 2022 FDI infrastructure earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. Instructions will be given at that time. As a reminder, this call is being recorded. I would like to turn the call over to Alan Andrini, head of investor relations. You may begin.

Thank you, Michelle. I would like to welcome you to the FTI Infrastructure fourth quarter and year-end 2022 earnings call. Joining me here today are Ken Nicholson, the CEO of FTI Infrastructure, and Scott Christopher, the company's CFO. We have posted an investor presentation and press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Ken, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now, I would like to turn the call over to Ken.

Thank you, Alan, and good morning, everyone. Today, we will be discussing the fourth quarter and full-year financials for Apti Infrastructure and also providing details of the latest developments at each of our four business segments and our expectations for the year ahead. Briefly, before we get to the financials, I'm pleased to report that we will be paying our second dividend as a standalone company with our board authorizing a $0.03 per share quarterly dividend to be paid to shareholders later this month. For this call, I'll be referring to the fourth quarter supplemental materials that were recently posted to our website. Starting with slide two, 2022 was an extremely productive year for us. We completed the spinoff of our company from FTI Aviation in August, establishing FTI Infrastructure as a pure play growth-focused infrastructure business. Financially, adjusted EBITDA for the year came in at $88.1 million from our four segments, up from $58.5 million in 2021. More importantly, during the year, we completed a number of material projects and business developments that should position us for substantial growth in 2023 and the years ahead. All in, we firmly believe that the stage is set for a strong 2023 and continue to target achieving This year, a run rate of 200 million of annual adjusted EBITDA from our segments, with no additional capital required to meet that target. Focusing on the fourth quarter, adjusted EBITDA from our four segments for the fourth quarter was 9.5 million. As previously disclosed, our reported financials for the quarter were impacted by an extended maintenance and repair outage at our Longridge Power Plant. I'll provide some details on what happened at Longridge, but suffice it to say, we believe the damage was an isolated event, All repairs had been made by the end of the quarter, and as of January 1st of this year, the plant was at full operating status and has been continuously operating near 100% of capacity this quarter to date. In terms of what happened in early October of last year, our team at Longridge discovered damage to our gas turbine as part of a planned maintenance outage and inspection process. The damage was caused by construction debris that had been left in the turbine's air intake prior to commissioning of the plant. The repair process resulted in the power plant being out of service substantially all of the fourth quarter. All repair costs are covered under warranty, but lost revenue during the quarter resulted in an operating loss to be recorded for the quarter at Longridge. This Longridge loss accounted for the bulk of variance in our adjusted EBITDA compared to Q3 of last year. Away from the event at Longridge, we're happy with our accomplishments for the quarter. Each of Jefferson, Rapano, and Transtar progressed their respective business plans, and we believe we are very well positioned for a solid 2023 ahead. Slide four, briefly on the balance sheet, we have ample liquidity today, and during the quarter, we put in place a new $50 million revolving credit facility at Transtar. Borrowings under the Transtar facility may be used to fund growth projects at Transtar and also provide working capital to the holding company if desired. In the aggregate, we had $1.2 billion of debt shown on the balance sheet at December 31st, $473 million of which is issued at our holding company and approximately $700 million is issued at Jefferson on a non-recourse basis. As we have said in the past, we view the Jefferson debt more as an asset than a liability with extremely low interest costs, average maturity of 14 years, the flexibility to pay dividends from Jefferson with excess cash flow, and not callable in the event of a sale. That will become increasingly relevant as we anticipate Jefferson generating meaningful cash flow in 2023 and the years ahead now that the new Exxon contract has commenced and we continue to see momentum down in Beaumont. On slide five of the earnings supplement, for each of our segments, we provide our reported 2022 adjusted EBITDA as well as our annual targets. In the aggregate, we continue to target annual adjusted EBITDA in excess of $200 million. The targets shown for each segment on the slide represent our expectation for annual run rate EBITDA to be achieved this year for that respective business. Like all infrastructure projects, the timing of achieving the specific targets will likely vary for each business, given the specific ramp-up of developments, in the case of Jefferson, for example, or commencement date of contracts, in the case of Propano. Importantly, achieving these targets requires no additional capital. I'll report more details on the following slides, so just to give you some quick highlights for now, Transtar is a great producer of cash flow for us, and we expect a number of new initiatives and third-party revenue to kick in starting in 2023. Jefferson continues to increase utilization of its now 6.2 million barrel capacity terminal. We recently closed on the acquisition of an additional several hundred acre site in Beaumont that we expect to result in highly creative new developments in the years to come. The impact of this new site, Jefferson South, are not included in our $80 million EBITDA target for Jefferson, so any income generated would be incremental to our targets. Rapano, which will remain in the near term a smaller part of our portfolio in terms of EBITDA contribution, has tremendous upside and is on the cusp of entering into long-term contracts for its Phase II transloating system. Finally, with the repair behind us, our plant at Longridge is achieving near 100% capacity factor and generating cash flow from excess gas sales. I'll now turn to more details on each of our four core businesses, starting with Transtar on slide six of the supplement. Transtar posted revenue of $150 million and adjusted EBITDA of $64.3 million in fiscal 2022, our first full year since acquiring the business in August of 2021. Cash flow for the year was $66.7 million in excess of adjusted EBITDA as proceeds from non-core asset sales more than offset capital expenditures. For the fourth quarter, slightly lower carload volumes were the result of the temporary idling by U.S. Steel of one of two blast furnaces at the Mon Valley Works facility. The blast furnace came back online in January. EBITDA for the quarter also included approximately $1.5 million of non-cash losses in connection with the sale of excess equipment. Excluding the impact of the idled blast furnace and the loss on asset sales, Transstar's results would have been in line with those reported for the third quarter of 2021. We're making very good progress on multiple initiatives at TransStar to drive incremental revenue and EBITDA. These programs, which are detailed on slide 7 of the supplement, represent approximately $30 million of incremental EBITDA opportunities annually with little to no additional investment. Our rail car and locomotive maintenance facilities are now open and serving customers. The number of third-party freight customers today stands at 30 and growing. Last year, we opened our first TransLog facility on our Michigan Railroad. And our real estate development pipeline is as strong as ever as we actively promote leasing and sale of over 700 acres of land that we own adjacent to our rail system. We expect 2023 to be a big year for progressing each of these initiatives and look forward to reporting our progress in the quarters to come. Now on to Jefferson. Jefferson generated 60.3 million of revenue and 18.5 million of EBITDA in fiscal 2022 compared to 46.4 million of revenue and 10.6 million of EBITDA in fiscal 2021. Two material events transpired in the fourth quarter. First, at the end of the quarter, we completed construction and commenced terminal operations under our new 10-year contract with Exxon. Exxon's $2 billion blade expansion will increase Exxon's refinery capacity in Beaumont by approximately 250,000 barrels per day. We expect our contract to generate approximately $20 million of incremental EBITDA annually as we ramp up throughput volume in line with the blade expansion ramp-ups. Secondly, during the quarter we acquired an additional property in Beaumont to provide additional real estate for expansion and growth. We're seeing multiple opportunities for the storage, transloading, and export of renewable fuels and hydrogen-based products. And with Jefferson nearing full build-out, this site is an ideal extension for our business. We expect this new addition, which we refer to as Jefferson South, to contribute incremental EBITDA as early as this year and to ultimately represent up to 50 million of opportunity incrementally. Back at the main terminal to reach our targets, we're focused on capacity utilization. As we continue to ramp up capacity, a meaningful portion of incremental revenue drops to the bottom line as we leverage fixed costs at Jefferson. As shown on slide nine, we estimate that after including the minimum commitments only from the new Exxon contract, we will have capacity in place to more than double our volume and revenue. We expect a portion of this remaining capacity to be taken up from Exxon business in excess of the contracted minimums, as the blade expansion ramps up over the next several months, and the rest represented by multiple customers and products we are in active discussions with. By the way, we and Exxon both expect the ramp-up of the blade to occur approximately in early April. Shifting to slide 10, at Rapano, we executed a multi-year contract in Q4 to transload natural gas liquids using our Phase I system. The contract, which is with one of the world's leading trading companies, commences on April 1 of this year and has a multi-year term with minimum volume commitments. With this contract in hand, Rapano is positioned to generate stable cash flows while we focus on securing business for our larger Phase 2 transloating system. As detailed on slide 11 of the supplement, our Phase 2 system is expected to materially increase our storage and throughput capacity when it comes online in a couple of years. In the aggregate, we expect Phase 2 to represent in excess of $40 million of annual EBITDA once complete. We have demand for multiple international off-takers, and our goal is to enter into long-term agreements with multiple parties in the coming months. Finally, moving on to Longridge. Longridge generated $18 million in EBITDA in fiscal 2022, inclusive of the losses incurred in connection with the fourth quarter outage. During the outage, We did continue the pace of gas production, which partially mitigated the impact of lost power sales. As we look to 2023 and the years ahead, we're enthusiastic about the future of Longridge. Our newly acquired 12,000 acres of additional gas assets in West Virginia essentially doubles our total gas supply. This new gas supply can ultimately provide up to 150,000 MMVTU per day, with first production commencing this year. Even at currently lower gas prices, that equates to approximately $5 million of incremental monthly EBITDA for Longridge. We expect to finance the capital expenditures required to develop gas production with additional debt at Longridge and currently are in discussions with multiple lenders. We expect new light technologies to commence construction in the coming months on its new facility built on Longridge property, which will produce carbon negative and biodegradable plastic products from natural gas. Longridge will sell power and natural gas to New Light, as well as provide land under a long-term lease. In addition, we expect to be an investor in the project if certain conditions are met. And finally, we continue to progress efforts to be named one of four national hydrogen hubs under the Department of Energy's program to stimulate clean hydrogen production and use in key markets. Of the 79 parties submitting applications initially, Longridge has been shortlisted as an encouraged applicant to advance to the next round with updated applications due in April. While it's a longer-term process, we believe the ultimate outcome of being selected as a hydrogen hub could be tremendous. Up to $8 billion of grant funds will be made available to recipients, potentially bringing significant new developments at Longridge. Our plant is the first in America to blend hydrogen as fuel, and we believe we are well positioned to receive hydrogen hub designation and benefit from access to federal grant funding to develop additional behind-the-meter customers.