FTAI Infrastructure Inc.

Good day, and welcome to the Q3 2023 FTAI Infrastructure Earnings Conference Call. As a reminder, this call is being recorded. I would like to turn the call over to Alan Andrini, Investor Relations. You may begin.

Thank you, Michelle. I would like to welcome you all to the FTAI Infrastructure Third Quarter 2023 Earnings Call. Joining me here today are Ken Nicholson, the CEO of FTAI Infrastructure, and Scott Christopher, the company's CFO. Hello. 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 supplements. 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 very much, Alan, and good morning, everyone. This morning we'll be discussing our third 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 third quarter supplemental materials recently posted to our website. To kick things off, I'm pleased to report that our board has authorized a $0.03 per share quarterly dividend to be paid on November 16th to the holders of record on November 9th. On to the financial results. Adjusted EBITDA prior to corporate expenses came in at $32.2 million for the quarter and $98.8 million for the nine months year-to-date. Our year-to-date results are up 25% versus last year with each of our four segments demonstrating growth. Reflecting on the results, while the headline third quarter numbers may not show it, I believe this was our most productive quarter since the spin-off of our business in August of last year. And our accomplishments during the quarter as it relates to new executed contracts set the stage for a strong fourth quarter and 2024 year ahead. At each of our segments, we continue to advance a number of growth initiatives and, more importantly, executed a number of long-term contracts, several of which have already begun to contribute to our revenue and earnings here in 4Q. Looking forward, we are targeting adjusted EBITDA to grow meaningfully in the coming quarters based on these events. In the near term, we expect adjusted EBITDA to be up 10% to 20% sequentially in the fourth quarter, and we continue to target reaching a run rate of $200 million of the annual adjusted EBITDA from our segments early next year, with no additional capital required to meet that target. In terms of the highlights of each segment, Transtar reported $17.4 million of adjusted EBITDA down a bit from an extremely strong 2Q and up from Q1 of this year. Operationally, Transtar had an excellent quarter, and were it not for the United Auto Workers strike that commenced late in the quarter and higher fuel costs, for which we will be reimbursed in the coming month, the quarter would have been more in line with 2Q results. At Jefferson, EBITDA grew as the ramp-up of our business continues. More importantly, during the quarter, we executed a number of new contracts representing an excess of 20 million of incremental adjusted annual EBITDA. A portion of these contracts commenced this month and will contribute to our results in Q4 and going forward. At Rapano, adjusted EBITDA loss continued to narrow while we made significant progress on our Phase 2 expansion project that will transform our business and long-term EBITDA generation. And finally, at Longridge, normal operations continued and we reported 8 million of adjusted EBITDA, reflecting minimal third-party gas sales given the lower overall market prices for natural gas. Briefly on the balance sheet. In the aggregate, we have $1.3 billion of debt at September 30 and no near-term maturities. Approximately $750 million of debt was at our Jefferson segment and $25 was at Rapana. At both of these entities, debt is non-recourse to the parent, carries low coupons and long duration, and is not callable in the event of the sale of the business. In essence, we view this debt as an asset. In addition, our TransStar freight rail business is completely debt-free, meaning all cash generated at the business can be distributed up to FIP with no limits or restrictions. I'll spend a few minutes providing more details on each of our segments now and then plan to turn it over to questions. I'll start with Transtar on slide seven of the supplement. Transtar posted revenue of $41.9 million and adjusted EBITDA of $17.4 million in Q3, down from revenue of $42.5 million and adjusted EBITDA of $20.3 million in Q2. Carload volumes grew for the quarter while average rate per carload declined as the mix of freight was impacted somewhat with higher margin projects related to the auto sector being softer in the quarter as a result of the UAW work stoppage. Operating expenses for the quarter were higher as a percentage of revenue driven primarily by events that we believe were unique. The largest variance was in fuel expense, which was higher given the overall higher price of diesel during the quarter. While we passed through this cost to our customers, we received reimbursement a few months after incurring the expense, so we will see the fuel effect reverse itself here in Q4. Away from U.S. Steel, we also continue to make good progress on multiple initiatives at Transtar to drive incremental third-party revenue and EBITDA. The bar chart on the right of slide seven of the supplement shows the incremental EBITDA we expect from each initiative. In total, we expect these programs to represent approximately $7.5 million of quarterly adjusted EBITDA or $30 million on an annual basis commencing in 2024. Now on to Jefferson. Jefferson generated $16.6 million of revenue and $7.8 million of adjusted EBITDA on Q3 compared to $17.1 million of revenue and $7.1 million of EBITDA on Q2. The P&L at Jefferson continued to demonstrate a shift to increased volumes of refined products versus crude oil. Transloading rates for refined products are typically lower on a per barrel basis for Jefferson given the process involves No heating or blending, as crude often does, but refined products also generate a high margin since the operating costs associated with refined products are quite low. For Q3, you'll see we posted lower revenue due to this dynamic, but continued to grow EBITDA due to the lower operating expenses. But the more important development during Q3 was on the new business front. We secured three new contracts at Jefferson, which in total represent $20 million of long-term annual adjusted EBITDA. While the third quarter did not contain any EBITDA from these new contracts, three of the two contracts have already commenced at this stage in Q4, so we'll see the positive benefits in our Q4 results ahead. The third contract is at our newly acquired Jefferson South site, where we secured a new 15-year contract for the transloading and export of hydrogen-based clean fuels commencing in 2025. Another highlight at Jefferson is the recent return of Canadian crude volumes after almost two years of absence. Canadian crude handling is a very high margin business for us, and this quarter we'll be handling multiple unit trains of Canadian crude oil that we hope represent more consistent flow from the Canadian market as rail volumes pick up and pipelines out of the region are constrained. In summary, we're bullish on Jefferson and continue to execute on the lease up of the remainder of our capacity. We're seeing something we've been waiting to see for quite a while now with the terminal, competition for our capacity. At Rapona, we continue to narrow our operating loss. Our phase one multi-year contract to transload natural gas liquids is continuing smoothly. That contract with an investment grade counterparty has minimum volume commitments and does not expose Rapona to commodity prices. With this phase one having commenced, Rapona is finalizing contracts for its much larger phase two transloading system. As detailed on slide nine of the supplement, our phase two system is expected to materially increase our storage throughput capacity when it comes online in two years. In the aggregate, we expect Phase 2 to cost approximately $200 million to build and to generate in excess of $40 million of annual EBITDA once complete. Moving on to Longridge. Longridge generated $8 million in EBITDA in Q3 versus $10.4 million in Q2. Power plant operations were steady while gas production continued to be managed down during the quarter in the currently lower gas pricing environment. At gas prices of under $1.25 per mm BTU, our profit on third-party sales is less impactful, so we have deliberately limited production and opted to keep excess gas in the ground in anticipation of higher gas prices, which are typical as we enter the winter season. We're taking a planned maintenance outage here in the fourth quarter, so our results will see some impact from that outage, but we expect the outage to be routine with the next outage scheduled for the late spring. At Longridge, we're focused on wrapping up financing for our recently acquired gas resources in West Virginia. We expect to have final debt commitments in place here in Q4 at an extremely attractive rate, so that positions us well to start gas production when prices recover. We also continue to progress a number of initiatives at Longridge. 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 incremental EBITDA in 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. To wrap up, we're pleased with our direction as we enter the final quarter of 2023 and excited about the things to come in the next year ahead. With that, let me turn the call back to Al.