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spk06: Hello. Thank you for standing by, and welcome to LTAI infrastructure Q1 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this time, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. I would now like to hand the conference over to your speaker, Alan Andre. You may begin, sir.
spk08: Thank you, Tawanda. I would like to welcome you all to the FTI Infrastructure first quarter 2023 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. 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.
spk09: Thanks, Alan, and good morning, everyone. This morning we will be discussing our first quarter financial results and also providing an update on the latest developments at each of our business segments. For this call, I'll be referring to the first quarter supplemental materials that were recently posted to our website. Before we get to the financials, I'm pleased to report that we will be paying our third dividend as a standalone company with our board authorizing a $0.03 per share quarterly dividend to be paid on May 26th to the holders of record on May 15th. Now on to the financials. We posted a strong first quarter financially and continue to generate momentum across our portfolio. Adjusted EBITDA for the quarter came in at $30.1 million prior to corporate expenses, up sequentially from $9.5 million in the fourth quarter of 2022. In comparing our two most recent quarters, it's important to remind everyone that our fourth quarter results included the impact of our Longridge power plant outage. That said, our adjusted EBITDA for the most recent Q1 was up meaningfully even after adjusting for the outage at Longridge. More importantly, during the quarter, each of our four segments made good progress in advancing their respective businesses, and we are well positioned for substantial growth in 2023 and the years ahead. All in, we 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. In terms of the highlights at each segment, Transtar continues to be a substantial producer of cash flow for us, with adjusted EBITDA coming in at $17.2 million for the quarter, up 27% from the fourth quarter of last year. At Jefferson, we began to handle volumes of refined products for export under our new contract with Exxon. Exxon completed the blade expansion in March, so we expect to see these volumes continue to increase in the quarters ahead. At Rapano, while the financial results reflected an adjusted EBITDA loss, the loss was largely a result of the forced sale of natural gas liquids in inventory that were required to be removed prior to commencing our new multi-year tolling contract on April 1st. With a new tolling contract in place, we expect Reponder to generate an operating profit going forward. And finally, at Longridge, operations returned to normal after the fourth quarter outage, and we reported $11.3 million of adjusted EBITDA, all in a very good quarter, setting the stage for continued growth ahead. Briefly on the balance sheet, we ended the quarter with $40 million of cash. In the aggregate, we had $1.3 billion of debt shown on the balance sheet at March 31, approximately $515 million of which is issued at or guaranteed by our holding company, and approximately $750 million of which is issued on a non-recourse basis at the individual asset level. Our non-recourse debt is issued primarily at Jefferson at an extremely low interest cost, long duration with weighted average maturity of 14 years, ample flexibility to pay dividends with excess cash flow, and not callable in the event of a sale. In short, we view the non-recourse debt at Jefferson as a valuable asset. I'll spend a few minutes providing more details on each of our segments and then plan to turn it over for questions. Starting with Transtar on slide 7 of the supplement, Transtar posted revenue of $41 million and adjusted EBITDA of $17.2 million in Q1, up from revenue of $35.8 million and adjusted EBITDA of $13.5 million in Q4 of last year. Both carload volumes and average rate per carload were higher for the quarter as U.S. steel production at the Gary, Indiana, and Mon Valley, Pennsylvania facilities returned to more normal levels, with blast furnaces returning from temporary idling. Away from U.S. steel, we also continue to make good progress on multiple initiatives at Transtar to drive incremental third-party revenue in EBITDA. We expect these programs to represent approximately $30 million of incremental EBITDA opportunities annually with little to no additional investments. Now on to Jefferson. Jefferson generated $19.1 million of revenue and $6.5 million of adjusted EBITDA in Q1 compared to $15.5 million of revenue and $4.5 million of EBITDA in Q4. Volumes for the quarter increased materially, both for refined products and crude oil, with total volumes averaging 163,000 barrels per day versus 102,000 barrels per day in Q4. The bulk of volume increases were attributable to the new Exxon export contract with the completion of Exxon's $2 billion Beaumont refinery expansion in March, increasing Exxon's refinery capacity by approximately 250,000 barrels per day to a total of 620,000 barrels per day. Exxon Beaumont is now the largest refinery in North America. While business grows at Jefferson's main terminal, we also made solid progress on a recently acquired nearby property in Beaumont. 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 for incremental EBITDA. Shifting to Rapano, we commenced on April 1st our multi-year contract to transload natural gas liquids using our Phase 1 system. The contract, which is with one of the world's leading trading companies, has minimum volume commitments and does not expose Rapano to commodity prices. In advance of commencing operations under the contract, Rapano sold, in March, its then-existing inventory, recording a loss on the sale driven by depressed butane prices. While not ideal timing, it was necessary in order to commence the tolling contract and not something we expect to reoccur. With phase one having commenced, Propano is now focused on securing business for our larger phase two tram loading system. As detailed on slide nine of the supplement, our phase two system is expected to materially increase our storage and throughput capacity, and when it comes online, in a couple of years. In the aggregate, we expect phase two to cost approximately 200 million to build, and to generate 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 $11.3 million in EBITDA in Q1, up from an adjusted EBITDA loss of $6.6 million in Q4, which included the power plant outage that persisted for the bulk of the fourth quarter. Power generating capacity for Q1 was at 93%. and gas production averaged 81,000 MMBTU per day in excess of the 72,000 MMBTU required for plant operations. As we look for the remainder of 2023, we expect both plant operations and gas production to be stable while we progress a number of initiatives to increase revenue and profits. In the near term, we're expecting final approvals in the coming months for the uprate of the power plant to 505 megawatts, an increase of 20 megawatts from our current generation capacity, That will contribute incrementally beyond the range of $5 to $10 million annually based upon current forward curves for the price of power. Over the longer term, we're seeing increased interest from behind-the-meter customers, including data center developers and companies focused on energy transition opportunities. So to wrap up, we're pleased with our start to 2023 and excited about the things to come in the year ahead. With that, let me turn the call back over to Alan.
spk08: Thank you, Ken. Tawanda, you may now open the call to Q&A.
spk06: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 1-1 on your telephone and then wait for your name to be announced. To withdraw your question, that's star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Juliano Balogno with Compass Point. Your line is open.
spk11: Good morning, and great to see the recovery in Transar and Longridge this quarter. Starting off on the Transar side, I'm curious if U.S. Steel is back up to full capacity now, and related to the U.S. Steel topic, I'm curious if there's any other business opportunities that Transar could tap into with U.S. Steel.
spk09: Yeah, hey, Juliano, thanks. They are. The blast furnaces, all blast furnaces are back up and running, and so operations there seem to be back to, you know, stable and normal, you know, conditions. That doesn't mean for Transtar there isn't further opportunity for growth. You know, of course, U.S. Steel brings in raw materials and then ships out finished steel products, and they do that by three primary modes. Rail, first and foremost. Marine, freight by barge, and then lastly by truck. I think the biggest opportunity for Tramstar is the conversion of trucked traffic today to rail. Rail is materially more efficient. We've been working with U.S. Steel on a handful of new opportunities where we think we can save them money. And I definitely expect that we'll realize some of those opportunities you know, during the path of this year. So, yes, certainly opportunity, probably, you know, 10% to 15%, you know, incremental revenue opportunity from our existing base through converting currently trucked freight to rail.
spk11: That's great. And, you know, staying on the TrendStar topic, where do you stand on the initial third-party business opportunities that you're working on that you were mentioning should drive, you know, roughly $30 million of incremental EBITDA? And what's the timing of some of those opportunities starting to roll in?
spk09: I'd say it's during the course of this year, 2023, they're really in two primary categories. One is just third-party freight movements. We continue to open up transload facilities to stimulate some of that. Our most successful one to date is up in the Detroit area on the Delray Connecting Railroad. That's doing very well. That itself, just one transit facility, will contribute at least a million dollars of revenue this year, probably up to $2 million. So we plan to open, ideally, dozens of transit facilities in the year ahead, so you get a sense for the impact of what that could have. Car repair is the other big component. We've got a big facility in Pittsburgh that is under construction, and that will be opening mid-year. We have an existing facility that needs some refurbishment down in the Texas area in Longview, and that will be opening as well later this year. And so, you know, precise timing is probably roughly in the third quarter when those facilities are able to be opened up and start generating revenue. But you get a sense, you know, by the time we swing into the fourth quarter, we should be in a pretty good place for both third-party business and the incremental repair revenue.
spk11: That's great. And I think, you know, granted, you're still running back up even out of TrendStar in the first quarter. But, you know, before the outage, we're running a $10.5 million, $19 million a quarter range with just the base U.S. deal business. And the $30 million M&F would add $7.5 million a quarter. I'm curious about thinking about your ability to get to $25 million a quarter or $100 million run rate by the end of the year.
spk09: Yeah, I feel good about it. Really, if we did nothing, no more third-party customers and, you know, no car repair, you know, the year should be about $80 million of EBITDA for Transtar, $75 to $80 million. You know, we're running today, just taking the first quarter. If you just annualize the first quarter, it's about $70. And I just think with normal growth, rate growth, you know, the year ahead and some small additional volume growth, the full quarter effect of all the blast furnaces being operating and what have you, that should be 75 and probably closer to 80 million of EBITDA. So, you know, bringing in the car repair and third-party business incrementally to that, we should be at an annual level of 100 to 110 million or, you know, you're 25 million plus per quarter by the end of the year.
spk11: That's great. And where's the application on the switching topics a little bit to Longridge? Where's the application for, span for the incremental 20-megawatt uprating, so bringing it up to 505 megawatts?
spk09: It is scheduled to be approved in either July or August of this year. We're obviously rooting for July because there is no incremental cost to that uprate, and the additional power revenue largely drops to the bottom line. Obviously, there's a little bit more gas that's needed to be produced or purchased in order to generate the additional megawatts, but we would be at the high end today of the $5 to $10 million of incremental EBITDA, so call it $10 million of EBITDA starting in July or August. We have half of that, of course, on our own P&L, so it would add $5 to the long-rich numbers starting in the third quarter.
spk11: That's great. Here's where things stand with prospects of behind-the-meter customers and if there are any active discussions ongoing at the moment.
spk09: We're always in active discussions. I would say those are longer-term projects. We obviously have New Light that will be commencing construction on their facility late this year. We have a handful of other very large prospects. These are prospects, each of which would require, I mean, frankly, they'd require 500 megawatts of power. They're significant. They are primarily focused on the data center space. You know, there is data center developers today are, with the advent of Chef GPT-AI and what have you and the demands for power, there is a significant rush to new data center capacity. And some of the bigger players in the space are accelerating their development plans. We're in a dialogue with all of the major players. There's one in particular who is closer. And again, the numbers are pretty significant. those tend to be longer term developments. Um, and so, you know, our goal of course is to sign, you know, up an additional opportunity in addition to new light at some point in the next three to six months. And then typically that would be a one to two year, you know, bill before we start actually seeing the revenue from that project. But, but obviously it's incredibly valuable once, once you have it in place.
spk11: That's great. And when I look at longer, you're at 11.3 million this quarter. and that incremental $5 million, basically 50% interest, would get you up to, call it $12.5 million per quarter. I'm curious what the drivers are to get to $15 million a quarter or $60 million a year run rate for Longridge.
spk09: Yeah, it is one of two things. It's either, as we just discussed, the additional behind-the-meter customers that may take some time, but the path to that Annual $60 million would definitely be there. Otherwise, it's capacity auctions. Capacity auctions have been down materially over the past couple of years, way off market. If they return to normal, that alone basically gets us close to that $60 million. It's just been incredibly weak. The capacity auction market has been incredibly weak from our perspective, meaning capacity revenues are well below where they have traditionally been. that swings back in our favor, then I think we're right there, you know, next year with the $60 million annual runway.
spk11: That sounds good. And then switching over to Jefferson, is the Blade project with Exxon fully ramped up at this point? And if it's not, I'd be glad to know what the timeline is to reach full capacity for that.
spk10: Yep.
spk09: I would say every month is growing. We averaged 163,000 barrels per day in the first quarter. This quarter to date, second quarter to date, which we've really had largely one month behind us, we're in excess of 200,000 barrels. And so it just gives you a sense for the momentum. We have capacity to handle in excess of 350,000 barrels per day. So we still have plenty of capacity. But yes, we're definitely seeing increased volumes as we're swinging into the second quarter here. And the trend line is very encouraging. I would say there's still excess capacity. And Exxon is, as I said in my comments, it's the biggest refinery in North America, frankly, the Western Hemisphere. And so there's still plenty of additional opportunity. We have the capacity to handle it. But know i like the momentum and the you know the the current run rate and you know i like what we saw in april and then uh i'd be curious if we can just expand on jefferson south and if you can disclose how much you paid for the land and if there's any capex related to jefferson south that's expected in the near term um yeah the um yeah i'll describe it a little bit it's a it's a significant site it's about 600 acres in total we paid um Less than $25 million for the site. It has two existing tenants that are major players and has about 200 acres available for development. It's on the other side of the river from Jefferson's main terminal. The two tenants, there are some minor freight movements for the two tenants, but we do provide services to the tenants, so there are really no net operating expenses for the site, so it doesn't impact. Owning that site doesn't really generate incremental revenue or certainly doesn't generate any incremental EBITDA for us, but represents a significant development opportunity. There is no capex that is required just to maintain the site. Like we've done at Rapano, we will not invest capital into that site until we have a contract. that justifies doing so. I do think in the coming months we will be executing our first contract with a third party for some trans-loading business. That will be the first of a handful of opportunities. We acquired this site with a set of opportunities that we had underwritten and are now pursuing and seeking to secure. Again, I think we'll have one here in the relatively near term. It'll represent somewhere between $5 million and $10 million of incremental EBITDA and probably a $30 million to $40 million capital investment. But again, we won't be investing in a capital until we've secured business.
spk11: That makes sense. It would be great if you could provide a bridge from where you are now from an EBITDA perspective at Jefferson to reaching the $80 million or so per year run rate.
spk09: Yeah, yeah, yeah. The simple way to think of it is incremental volumes, assuming the same rate per barrel, obviously generate incremental revenue. and our expenses are largely fixed, and so those incremental revenue dollars drop straight to the bottom line. Just to put it, though, in context, as I said, we moved 163,000 barrels per day in the first quarter on average at an average rate of $1.30 per barrel. That $1.30 is a bit of a mix-up. There's some storage revenue, there's throughput revenue, but I'm just trying to keep it simple. So $163,000 at $1.30 per barrel generating about 19 million of revenue and 6.5 million of EBITDA. We have capacity to handle, as I said, 350,000 up to almost 400,000 barrels per day. If you just double capacity, however, take the 165,000 that we did in the first quarter to about 300,000 and hold the same rate per barrel of $1.30, you've basically gotten right there to the $80 million run rate. You generate about 20 million of EBITDA in the quarter, Because a significant portion of the expenses are fixed, they don't grow with that volume growth. And you'd be generating about $19 to $20 million in the quarter. As I said, the $163,000 for the first quarter is less than where we're currently running. We see significant positive momentum. So the path to getting to that 300,000 barrels per day plus is a process. It is a path. But I like the momentum. You know, we're running north of 200,000 barrels per day, so we're on our way. You know, I think it takes the bulk of the second quarter ultimately to get there. At some point in the third quarter, you know, we swing into that kind of level.
spk11: That's very helpful. And then to come over to Rapano, I'd be curious, you know, where you and I should go, you know, now that the contract, you know, went live, the new contract. butane contract went live on April 1st. I realize this probably will be the transition during the first quarter of the contract going live. I'm curious where the quarterly or annual run rate should be.
spk09: Yep. Well, our target for phase one is 10 million, the 10 million of annual EBITDA. The contract in place is for about two-thirds of our total phase one capacity. So if you just assume that That single contract, it's probably closer to $5 million annually, but the incremental capacity that's available for phase one, which is something we expect to secure here in the second quarter, would get you to about the $10 million annual run rate. Obviously, the first quarter was a little bit frustrating. We had to spend a little bit of money to get ready for the new contract. We had to sell some inventory. market timing was unfortunate there. That is behind us. But with the existing contract in place, it's, you know, we'll certainly be in the black. And, you know, if we can secure additional volumes to use all the capacity to phase one, you know, we should be hitting, I would say in the second half of this year, two and a half million per quarter or 10 million annual run rate.
spk11: That's great. And then I'd be curious where you are on the, prospects for securing the two sides for Phase 2, and if there's any CapEx at Rapana other than the Phase 2 build-up.
spk09: No additional CapEx at Rapana. We're done outside of what would be Phase 2. Everything's working extremely well, and there's no need for additional capital other than the Phase 2 expansions. We have a handful of folks, all very large international players that we're in a dialogue with about volumes for Phase II. I'm glad you asked the question the way you did because it's not just offtake that we're seeking. It is supply on the one side and then the offtake on the other side. Frankly, it's less us seeking that. It's more the offtaker. The offtaker is securing volumes of butane and propane from the Marcellus and Utica and then They're, of course, securing their own offtake in the European and African markets. I would say we're very close with one brand name, very well-known player. And that's been several, several months of dialogue and back and forth. We have two others that are close behind. Look, these are massive institutions. They typically don't move terribly quickly. They're very thoughtful, of course, because they're committing to five to ten years of a supply chain. But I'm confident we'll get at least one of these guys to sign up in the coming months. And I think all we need is one. Once we have one, we'll commit to the project and go ahead and finance it and start construction. It's ready to go. It is permitted, engineered, ready to go. We just want to make sure we have the contract in hand before we commit the capital.
spk11: That's great. And then switching away from the specific assets, I'm curious when you think the company will be in a position to start paying down debt and reducing leverage?
spk09: We're targeting that for later this year. At this point, we have better uses for our capital. Look, our cost of debt capital is relatively high, but at the same time, right now, the way our securities work, the cost to prepay that debt is also relatively high. we have pretty attractive uses for our free cash flow. So I don't necessarily see us using cash to repay debt, you know, at some point this year. That's something that would start making sense as we swing into the fourth quarter and swing into 2024. You know, the ultimate plan would be by the time we get to mid-2024, we're in a position to refinance the entire balance sheet, and that I think would be a highly accretive thing. to do at lower rates with a lot of excess cash. We're really a very different company, a very different credit profile and what have you when we're generating $200 million of EBITDA annually. And so we'll have the ability to refinance our debt at lower prices in the summer of next year. Maybe we'll take advantage of things that we have the opportunity to prior to that. I'd love to. But I do think any refinancing we do, you know, should be a highly accretive thing when we ultimately do it.
spk11: That's very helpful. And, you know, looking across the board, are you looking at any other M&A or JV opportunities, you know, at the forming assets at this point?
spk04: Yeah, I...
spk09: The answer is yes. We're always looking at stuff. There are a handful of opportunities in the ports and terminals sector that we've been looking at. Those tend to be a little bit more spotty. We're primarily focused on opportunities in energy terminals, leveraging some of the relationships and the platform that we have today with Jefferson and Rapanoe. I'd say the most recent pickup in activity is definitely on the rail space. It was very quiet last year. We're starting to see a pickup in opportunities. I'm thrilled we own Transtar, of course, because it's a phenomenal platform for acquisitions. And yes, we're definitely seeing more opportunities in the rail space. And that's a nice thing. Nice tuck-in opportunities are some that are slightly more chunky but highly complementary with Transtar. So we're always looking at stuff. And, yeah, I'm pleased that we're seeing a little bit more liquidity or fluidity in the M&A market and expect that to last for the bulk of 2023.
spk11: That's great. Thank you for answering a number of questions, and let me monopolize the Q&A session there. But I appreciate all the answers, and I will jump back in the queue. Thank you.
spk07: No problem. Thanks very much.
spk06: Thank you. I'm sure no further questions in the queue. I would now like to turn the call back over to Alan.
spk08: Thank you, Talinda. And thank you all for participating in today's conference call. We look forward to updating you after Q2.
spk06: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Hello. Thank you. music. you you
spk00: Thank you. Thank you. you
spk06: Hello, thank you for standing by, and welcome to LTAI Infrastructure Q1 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this time, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I will now like to hand the conference over to your speaker, Alan Andre. You may begin, sir.
spk08: Thank you, Tawanda. I would like to welcome you all to the FTI Infrastructure first quarter 2023 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. 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.
spk09: Thanks, Alan, and good morning, everyone. This morning we will be discussing our first quarter financial results and also providing an update on the latest developments at each of our business segments. For this call, I'll be referring to the first quarter supplemental materials that were recently posted to our website. Before we get to the financials, I'm pleased to report that we will be paying our third dividend as a standalone company with our board authorizing a $0.03 per share quarterly dividend to be paid on May 26th to the holders of record on May 15th. Now on to the financials. We posted a strong first quarter financially and continue to generate momentum across our portfolio. Adjusted EBITDA for the quarter came in at $30.1 million prior to corporate expenses, up sequentially from $9.5 million in the fourth quarter of 2022. In comparing our two most recent quarters, it's important to remind everyone that our fourth quarter results included the impact of our Longridge power plant outage. That said, our adjusted EBITDA for the most recent Q1 was up meaningfully even after adjusting for the outage at Longridge. More importantly, during the quarter, each of our four segments made good progress in advancing their respective businesses, and we are well positioned for substantial growth in 2023 and the years ahead. All in, we 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. In terms of the highlights at each segment, Transtar continues to be a substantial producer of cash flow for us, with adjusted EBITDA coming in at $17.2 million for the quarter, up 27% from the fourth quarter of last year. At Jefferson, we began to handle volumes of refined products for export under our new contract with Exxon. Exxon completed the blade expansion in March, so we expect to see these volumes continue to increase in the quarters ahead. At Rapano, while the financial results reflected an adjusted EBITDA loss, the loss was largely a result of the forced sale of natural gas liquids in inventory that were required to be removed prior to commencing our new multi-year tolling contract on April 1st. With a new tolling contract in place, we expect Reponder to generate an operating profit going forward. And finally, at Longridge, operations returned to normal after the fourth quarter outage, and we reported $11.3 million of adjusted EBITDA, all in a very good quarter, setting the stage for continued growth ahead. Briefly on the balance sheet, we ended the quarter with $40 million of cash. In the aggregate, we had $1.3 billion of debt shown on the balance sheet at March 31, approximately $515 million of which is issued at or guaranteed by our holding company, and approximately $750 million of which is issued on a non-recourse basis at the individual asset level. Our non-recourse debt is issued primarily at Jefferson at an extremely low interest cost, long duration with weighted average maturity of 14 years, ample flexibility to pay dividends with excess cash flow, and not callable in the event of a sale. In short, we view the non-recourse debt at Jefferson as a valuable asset. I'll spend a few minutes providing more details on each of our segments and then plan to turn it over for questions. Starting with Transtar on slide 7 of the supplement, Transtar posted revenue of $41 million and adjusted EBITDA of $17.2 million in Q1, up from revenue of $35.8 million and adjusted EBITDA of $13.5 million in Q4 of last year. Both carload volumes and average rate per carload were higher for the quarter as U.S. steel production at the Gary, Indiana, and Mon Valley, Pennsylvania facilities returned to more normal levels, with blast furnaces returning from temporary idling. Away from U.S. steel, we also continue to make good progress on multiple initiatives at Transtar to drive incremental third-party revenue in EBITDA. We expect these programs to represent approximately $30 million of incremental EBITDA opportunities annually with little to no additional investments. Now on to Jefferson. Jefferson generated $19.1 million of revenue and $6.5 million of adjusted EBITDA in Q1 compared to $15.5 million of revenue and $4.5 million of EBITDA in Q4. Volumes for the quarter increased materially, both for refined products and crude oil, with total volumes averaging 163,000 barrels per day versus 102,000 barrels per day in Q4. The bulk of volume increases were attributable to the new Exxon export contract with the completion of Exxon's $2 billion Beaumont refinery expansion in March, increasing Exxon's refinery capacity by approximately 250,000 barrels per day to a total of 620,000 barrels per day. Exxon Beaumont is now the largest refinery in North America. While business grows at Jefferson's main terminal, we also made solid progress on a recently acquired nearby property in Beaumont. 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 for incremental EBITDA. Shifting to Rapano, we commenced on April 1st our multi-year contract to transload natural gas liquids using our Phase 1 system. The contract, which is with one of the world's leading trading companies, has minimum volume commitments and does not expose Rapano to commodity prices. In advance of commencing operations under the contract, Rapano sold, in March, its then-existing inventory, recording a loss on the sale driven by depressed butane prices. While not ideal timing, it was necessary in order to commence the tolling contract and not something we expect to reoccur. With phase one having commenced, Propano is now focused on securing business for our larger phase two tram loading system. As detailed on slide nine of the supplement, our phase two system is expected to materially increase our storage and throughput capacity and when it comes online in a couple of years. In the aggregate, we expect phase two to cost approximately $200 million to build and and to generate 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 $11.3 million in EBITDA in Q1, up from an adjusted EBITDA loss of $6.6 million in Q4, which included the power plant outage that persisted for the bulk of the fourth quarter. Power generating capacity for Q1 was at 93%. and gas production averaged 81,000 MMBTU per day in excess of the 72,000 MMBTU required for plant operations. As we look for the remainder of 2023, we expect both plant operations and gas production to be stable while we progress a number of initiatives to increase revenue and profits. In the near term, we're expecting final approvals in the coming months for the uprate of the power plant to 505 megawatts, an increase of 20 megawatts from our current generation capacity, That will contribute incrementally beyond the range of $5 to $10 million annually based upon current forward curves for the price of power. Over the longer term, we're seeing increased interest from behind-the-meter customers, including data center developers and companies focused on energy transition opportunities. So to wrap up, we're pleased with our start to 2023 and excited about the things to come in the year ahead. With that, let me turn the call back over to Alan.
spk08: Thank you, Ken. Tawanda, you may now open the call to Q&A.
spk06: Thank you. Ladies and gentlemen, as a reminder, to ask the question, please press star 1-1 on your telephone and then wait for your name to be announced. To withdraw your question, that's star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Juliano Balogno with Compass Point. Your line is open.
spk11: Good morning, and great to see the recovery in Transar and Longridge this quarter. Starting off on the Transar side, I'm curious if U.S. Steel is back up to full capacity now, and related to the U.S. Steel topic, I'm curious if there's any other business opportunities that Transar could tap into with U.S. Steel.
spk09: Yeah, hey, Juliano, thanks. They are. The blast furnaces, all blast furnaces are back up and running, and so operations there seem to be back to stable and normal conditions. That doesn't mean for Transtar there isn't further opportunity for growth. Of course, U.S. Steel brings in raw materials and then ships out finished steel products, and they do that by three primary modes. Rail, first and foremost. Marine, freight by barge, and then lastly by truck. I think the biggest opportunity for Transtar is the conversion of trucked traffic today to rail. Rail is materially more efficient. We've been working with U.S. Steel on a handful of new opportunities where we think we can save them money. And I definitely expect that we'll realize some of those opportunities you know, during the path of this year. So, yes, certainly opportunity, probably, you know, 10% to 15%, you know, incremental revenue opportunity from our existing base through converting currently trucked freight to rail.
spk11: That's great. And, you know, staying on the TrendStar topic, where do you stand on the initial third-party business opportunities that you're working on that you were mentioning should drive, you know, roughly $30 million of incremental EBITDA? And what's the timing of some of those opportunities starting to roll in?
spk09: I'd say it's during the course of this year, 2023, they're really in two primary categories. One is just third-party freight movements. We continue to open up transload facilities to stimulate some of that. Our most successful one to date is up in the Detroit area on the Delray Connecting Railroad. That's doing very well. That itself, just one transit facility, will contribute at least a million dollars of revenue this year, probably up to $2 million. So we plan to open ideally dozens of transit facilities in the year ahead so you get a sense for the impact of what that could have. Car repair is the other big component. We've got a big facility in Pittsburgh that is under construction and that will be opening mid-year. We have an existing facility that needs some refurbishment down in the Texas area in Longview, and that will be opening as well later this year. And so, you know, precise timing is probably roughly in the third quarter when those facilities are able to be opened up and start generating revenue. But you get a sense, you know, by the time we swing into the fourth quarter, we should be in a pretty good place for both third-party business and the incremental repair revenue.
spk11: That's great. And I think, you know, granted, you're still running back up even out of TrendStar in the first quarter. But, you know, before the outage, we're running a $10.5 million, $19 million a quarter range with just the base U.S. deal business. And the $30 million MNF would add $7.5 million a quarter. I'm curious about thinking about your ability to get to $25 million a quarter or $100 million run rate by the end of the year.
spk09: Yeah, I feel good about it. Really, if we did nothing, no more third-party customers and, you know, no car repair, you know, the year should be about $80 million of EBITDA for Transtar, $75 to $80 million. You know, we're running today, just taking the first quarter. If you just annualize the first quarter, it's about $70. And I just think with normal growth, rate growth, you know, the year ahead and some small additional volume growth, the full quarter effect of all the blast furnaces being operating and what have you, that should be 75 and probably closer to 80 million of EBITDA. So, you know, bringing in the car repair and third-party business incrementally to that, we should be at an annual level of 100 to 110 million or, you know, you're 25 million plus per quarter by the end of the year.
spk11: That's great. And where's the application on the switching topics a little bit to Longridge? Where's the application for, span for the incremental 20-megawatt uprating, so bringing it up to 505 megawatts?
spk09: It is scheduled to be approved in either July or August of this year. We're obviously rooting for July because there is no incremental cost to that uprate, and the additional power revenue largely drops to the bottom line. Obviously, there's a little bit more gas that's needed to be produced or purchased in order to generate the additional megawatts, but we would be at the high end today of the $5 to $10 million of incremental EBITDA, so call it $10 million of EBITDA starting in July or August. We have half of that, of course, on our own P&L, so it would add $5 to the long-rich numbers starting in the third quarter.
spk11: That's great. Here's where things stand with prospects of behind-the-meter customers and if there are any active discussions ongoing at the moment.
spk09: We're always in active discussions. I would say those are longer-term projects. We obviously have New Light that will be commencing construction on their facility late this year. We have a handful of other very large prospects. These are prospects, each of which would require, I mean, frankly, they'd require 500 megawatts of power. They're significant. They are primarily focused on the data center space. You know, there is, data center developers today are, with the advent of Chef GPT-AI and what have you, and the demands for power, there is a significant rush to new data center capacity. And some of the bigger players in the space are accelerating their development plans. We're in a dialogue with all of the major players. There's one in particular who is closer. And again, the numbers are pretty significant. those tend to be longer term developments. Um, and so, you know, our goal of course is to sign, you know, up an additional opportunity in addition to new light at some point in the next three to six months. And then typically that would be a one to two year, you know, bill before we start actually seeing the revenue from that project. But, but obviously it's incredibly valuable once, once you have it in place.
spk11: That's great. And when I look at longer, you're at 11.3 million this quarter. And that incremental $5 million, basically 50% interest, would get you up to $12.5 million per quarter. I'm curious what the drivers are to get to $15 million a quarter or $60 million a year run rate for Longridge.
spk09: Yeah, it is one of two things. It's either, as we just discussed, the additional behind-the-meter customers that may take some time, but the path to that, Annual $60 million would definitely be there. Otherwise, it's capacity auctions. Capacity auctions have been down materially over the past couple of years, way off market. If they return to normal, that alone basically gets us close to that $60 million. It's just been incredibly weak. The capacity auction market has been incredibly weak from our perspective, meaning capacity revenues are well below where they have traditionally been. that swings back in our favor, then I think we're right there next year with the $60 million annual runway.
spk11: That sounds good. And then switching over to Jefferson, is the Blade project with Exxon fully ramped up at this point? And if it's not, I'd be glad to know what the timeline is to reach full capacity for that.
spk10: Yep.
spk09: I would say every month is growing. We averaged 163,000 barrels per day in the first quarter. This quarter to date, second quarter to date, which we've really had largely one month behind us, we're in excess of 200,000 barrels. And so it just gives you a sense for the momentum. We have capacity to handle in excess of 350,000 barrels per day. So we still have plenty of capacity. But yes, we're definitely seeing increased volumes as we're swinging into the second quarter here. And the trend line is very encouraging. I would say there's still excess capacity. And Exxon is, as I said in my comments, it's the biggest refinery in North America, frankly, the Western Hemisphere. And so there's still plenty of additional opportunity. We have the capacity to handle it. But I like the momentum and the current run rate, and I like what we saw in April.
spk11: And then I'd be curious if we can just expand on Jefferson South and if you can disclose how much you paid for the land and if there's any capex related to Jefferson South that's expected in the near term.
spk09: Yeah, I'll describe it a little bit. It's a significant site. It's about 600 acres in total. We paid less than $25 million for the site. It has two existing tenants that are major players and has about 200 acres available for development. It's on the other side of the river from Jefferson's main terminal. The two tenants, there are some minor freight movements for the two tenants, but we do provide services to the tenants, so there are really no net operating expenses for the site, so it doesn't impact. Owning that site doesn't really generate incremental revenue or certainly doesn't generate any incremental EBITDA for us, but represents a significant development opportunity. There is no capex that is required just to maintain the site. Like we've done at Rapano, we will not invest capital into that site until we have a contract. that justifies doing so. I do think in the coming months we will be executing our first contract with a third party for some trans-loading business. That will be the first of a handful of opportunities. We acquired this site with a set of opportunities that we had underwritten and are now pursuing and seeking to secure. Again, I think we'll have one here in the relatively near term. It'll represent somewhere between $5 million and $10 million of incremental EBITDA and probably a $30 million to $40 million capital investment. But again, we won't be investing in capital until we've secured business.
spk11: That makes sense. I guess it would be great if you could provide a bridge from where you are now from an EBITDA perspective at Jefferson to reaching the 80 million or so per year run rate.
spk09: Yeah, yeah, yeah. The simple way to think of it is incremental volumes, assuming the same rate per barrel, obviously generate incremental revenue. and our expenses are largely fixed, and so those incremental revenue dollars drop straight to the bottom line. Just to put it, though, in context, as I said, we moved 163,000 barrels per day in the first quarter on average at an average rate of $1.30 per barrel. That $1.30 is a bit of a mix-up. There's some storage revenue. There's throughput revenue. I'm just trying to keep it simple. So $163,000 at $1.30 per barrel. generating about 19 million of revenue and 6.5 million of EBITDA. We have capacity to handle, as I said, 350,000 up to almost 400,000 barrels per day. If you just double capacity, however, take the 165,000 that we did in the first quarter to about 300,000 and hold the same rate per barrel of $1.30, you've basically gotten right there to the $80 million run rate. You generate about 20 million of EBITDA in the quarter, Because a significant portion of the expenses are fixed, they don't grow with that volume growth. And you'd be generating about $19 to $20 million in the quarter. As I said, the $163,000 for the first quarter is less than where we're currently running. We see significant positive momentum. So the path to getting to that 300,000 barrels per day plus is a process. It is a path. But I like the momentum. You know, we're running north of 200,000 barrels per day, so we're on our way. You know, I think it takes the bulk of the second quarter ultimately to get there. At some point in the third quarter, you know, we swing into that kind of level.
spk11: That's very helpful. And then to come over to Rapano, I'd be curious, you know, where you would actually go, you know, now that the contract, you know, went live, the new contract. butane contract went live on April 1st. I realize this probably will be the transition during the first quarter of the contract going live. I'm curious to hear where the quarterly or annual run rate should be.
spk09: Yep. Well, our target for phase one is 10 million, the 10 million of annual EBITDA. The contract in place is for about two-thirds of our total phase one capacity. So if you just assume that You know, that single contract, it's probably, you know, closer to $5 million annually, but the incremental capacity that's available for phase one, which is something we expect to secure here in the second quarter, would get you to about the $10 million annual run rate. Obviously, the first quarter was, you know, was not a, was a little bit frustrating. You know, we had to spend a little bit of money to get ready for the new contract. We had to sell some inventory initially. market timing was unfortunate there. That is behind us. But with the existing contract in place, it's, you know, we'll certainly be in the black. And, you know, if we can secure additional volumes to use all the capacity to phase one, you know, we should be hitting, I would say in the second half of this year, two and a half million per quarter or 10 million annual run rate.
spk11: That's great. And then I'd be curious where you are on the, prospects for securing the two sides for Phase 2, and if there's any CapEx at Rapana other than the Phase 2 build-up.
spk09: No additional CapEx at Rapana. We're done outside of what would be Phase 2. Everything's working extremely well, and there's no need for additional capital other than the Phase 2 expansions. We have a handful of folks, all very large international players that we're in a dialogue with about volumes for Phase II. I'm glad you asked the question the way you did because it's not just offtake that we're seeking. It is supply on the one side and then the offtake on the other side. Frankly, it's less us seeking that. It's more the offtaker. The offtaker is securing volumes of butane and propane from the Marcellus and Utica and then They're, of course, securing their own offtake in the European and African markets. I would say we're very close with one brand name, very well-known player. And that's been several, several months of dialogue and back and forth. We have two others that are close behind. Look, these are massive institutions. They typically don't move terribly quickly. They're very thoughtful, of course, because they're committing to five to ten years of a supply chain. But I'm confident we'll get at least one of these guys to sign up in the coming months. And I think all we need is one. Once we have one, we'll commit to the project and go ahead and finance it and start construction. It's ready to go. It is permitted, engineered, ready to go. We just want to make sure we have the contract in hand before we commit the capital.
spk11: That's great. And then switching away from the specific assets, I'm curious when you think the company will be in a position to start paying down debt and reducing leverage?
spk09: We're targeting that for later this year. At this point, we have better uses for our capital. Look, our cost of debt capital is relatively high, but at the same time, right now, the way our securities work, the cost to prepay that debt is also relatively high. we have pretty attractive uses for our free cash flow. So I don't necessarily see us using cash to repay debt, you know, at some point this year. That's something that would start making sense as we swing into the fourth quarter and swing into 2024. You know, the ultimate plan would be by the time we get to mid-2024, we're in a position to refinance the entire balance sheet, and that I think would be a highly accretive thing. to do at lower rates with a lot of excess cash. We're really a very different company, a very different credit profile and what have you when we're generating $200 million of EBITDA annually. And so we'll have the ability to refinance our debt at lower prices in the summer of next year. Maybe we'll take advantage of things that we have the opportunity to prior to that. I'd love to. But I do think any refinancing we do should be a highly accretive thing when we ultimately do it.
spk11: That's very helpful. And looking across the board, are you looking at any other M&A or JV opportunities at the four main assets at this point?
spk04: Yeah, I...
spk09: The answer is yes. We're always looking at stuff. There are a handful of opportunities in the ports and terminals sector that we've been looking at. Those tend to be a little bit more spotty. We're primarily focused on opportunities in energy terminals, leveraging some of the relationships and the platform that we have today with Jefferson and Rapanoe. I'd say the most recent pickup in activity is definitely on the rail space. It was very quiet last year. We're starting to see a pickup in opportunities. I'm thrilled we own Transtar, of course, because it's a phenomenal platform for acquisitions. And yes, we're definitely seeing more opportunities in the rail space. And that's a nice thing. Nice tuck-in opportunities are some that are slightly more chunky but highly complementary with Transtar. So we're always looking at stuff. And, yeah, I'm pleased that we're seeing a little bit more liquidity or fluidity in the M&A market and expect that to last for the bulk of 2023.
spk11: That's great. Thank you for answering a number of questions and letting me monopolize the Q&A session there. But I appreciate all the answers, and I will jump back in the queue. Thank you.
spk07: No problem. Thanks very much.
spk06: Thank you. I'm sure no further questions in the queue. I would now like to turn the call back over to Alan.
spk08: Thank you, Talinda. And thank you all for participating in today's conference call. We look forward to updating you after Q2.
spk06: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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