FTAI Infrastructure Inc.

Good day and thank you for standing by. Welcome to the Q1 2024 FTAI Infrastructure Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, 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 questions, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Andrini, Investor Relations. Please go ahead.

Thank you, Dede. I would like to welcome you all to the FTI Infrastructure First Quarter 2024 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 our press release on our website, which we encourage you to download if you have not already done so. Also, please note that the 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 reconciliation 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. Okay. Thank you very much, Alan, and good morning, everyone. This morning, we will be discussing our financial results for the first quarter of 2024, and in doing so, I'll be referring to the earnings supplement, which we recently posted to our website. Before getting into the financials, I'm pleased to report that our board has authorized a $0.03 per share quarterly dividend to be paid on May 29th to the holders of record on May 17th. Now on to the results. First quarter adjusted EBITDA prior to corporate expenses came in at $37.2 million, up 24% from the first quarter of 2023, and largely in line with EBITDA for the fourth quarter of 2023 when you exclude the impact of several one-time items at our Jefferson Terminal. Our performance for the quarter was driven by continued strength of Transtar, our biggest cash flow generator, and steady operations at Longridge, while Jefferson results were impacted by a longer-than-expected maintenance overhaul at the Motiva refinery, which I'll talk more about shortly. Looking forward, we expect Q2 to demonstrate continued momentum across our companies as a result of new business wins and multiple initiatives, which we implemented last year. We continue to forecast generating in excess of $200 million of run rate EBITDA during 2024. In terms of the highlights at each segment, Transtar posted $21.7 million of adjusted EBITDA, generating new records in each of car loads, average rates, and revenue. Operationally, Transtar had an excellent quarter and would have posted record EBITDA after adjusting for fuel surcharge timing and the receipt of 45G tax credits, which hit the P&L only in the fourth quarter of each year. Pricing increases and several new business activities, including our new rail car repair facility, having already begun to contribute in 2024, so we expect momentum to continue at Transtar in the year to come. At Jefferson, EBITDA was $6.8 million for the quarter, reflecting the 45-day maintenance overhaul at the Motiva refinery. Had Motiva operations stayed steady, we estimate EBITDA would have exceeded $10 million in Q1. With the outage behind us, Jefferson operations are more active than ever, and the most recent month of April has posted record volumes and revenues, putting us on pace to post-record results in Q2. At Rapana, we made significant progress on our Phase 2 expansion project that will transform our business and long-term EBITDA generation. And finally, at Longridge, results reflect consistent operations, at a 98% capacity factor, as well as reduced third-party gas sales given the lower price environment for natural gas. We continue to be extremely optimistic about our prospects at Longridge, particularly for AI data center demand, and believe the opportunity for creating substantial value from behind-the-meter customers is stronger than ever. Briefly on the balance sheet. Total debt of $1.3 billion at March 31 was unchanged from last quarter. $562 million of debt was at the corporate level, while the rest of our debt was at our business units. Transstar continued to be completely debt-free, while approximately $753 million of debt was at our Jefferson segment and $50 million was at Rapano. This week, we plan to launch a new debt financing at Jefferson, with proceeds used to refinance a portion of our existing debt coming due next year and to finance construction of dock improvements at our new Jefferson South site in connection with the long-term clean fuels contract we signed last year. Importantly, as part of the upcoming Jefferson financing, we also plan to incorporate a tender offer for some of our existing debt, allowing us to opportunistically take advantage of the embedded discount and some of our outstanding tax exempt bonds, which carry lower coupons. If successful, the tender offer will enable us to reduce our aggregate debt balance in a cash flow neutral manner, ultimately increasing the equity value of Jefferson. We expect the financing to be in the market over the next couple of weeks and close in late May or early June. I'll now talk through the detailed results at each of our segments and then I'll plan to turn it over to questions. Starting with Transtar on slide seven of the supplement, Transtar posted record revenue of 46.3 million and adjusted EBITDA of 21.7 million in Q4 compared with revenue of 44 million and adjusted EBITDA of 23.6 million in Q4. Car load volumes, average rate per car, and total revenue all came in at new records in the quarter. Fuel expenses were slightly higher versus Q4 last year given the typical lag in fuel surges that we received. In Q4, we also experienced lower expenses versus this Q1 due to the impact of these 45G tax credits, which hit our P&L in a positive way in Q4 every year as opposed to being spread over the entire year. Had fuel expense and the tax credit dynamic been consistent with Q4, our first quarter EBITDA would have been another record result. We're making great progress on our various initiatives to drive incremental revenue and diversify our customer base. On June 1st, we will commence a lease with Norfolk Southern for a 41-mile extension of Transtar's current East Ohio Valley Railroad. The extension provides Transtar with additional commercial opportunities which have potential to contribute meaningful EBITDA in the near to midterm. We expect these new opportunities, together with similar ones at other Transtar railroads, to represent approximately $4 to $6 million of quarterly EBITDA or 20 million on an annualized basis. Now on to Jefferson. Jefferson generated 18.6 million of revenue and 6.8 million of adjusted EBITDA in Q1 versus 19.3 million of revenue and 14.3 million of EBITDA in Q4. During the quarter, Motiva undertook the 45-day maintenance overhaul of its large crude distillation unit in Coker. The result was a temporary reduction in crude throughput at Jefferson, driving lower volumes and revenue during the overhaul. Had it not been for the turnaround, quarterly EBITDA would have exceeded Q4 when adjusting for Jefferson's Q4 gain on sale. By the end of the quarter, throughput volumes to Motiva returned to normal, and we saw record volumes of over 200,000 barrels per day in the month of April, a new monthly record putting us on pace for a record 2Q ahead. More importantly, the new business environment at Jefferson remains robust, and we are advancing more opportunities for both conventional energy products as well as clean hydrogen-based fuels. In addition to the new 15-year contract for the trans-living and export of ammonia commencing in 2025, we made good progress on three additional projects and advanced negotiations, which together with last year's ammonia contract represent approximately $75 million of annual EBITDA and will be transformational for Jefferson. As we said last quarter, if we're successful in converting these opportunities to business-wins, we will far exceed our prior targets of $80 million of annual EBITDA. Briefly on Rapano, with Phase 1 operations continuing, our negotiations are nearly complete in connection with our larger Phase 2 transloading system. We expect Phase 2 to quadruple the capacity of natural gas liquids handled at the terminal. I'm confident we'll sign up our first customer for Phase 2 here in the second quarter and start construction immediately thereafter. In the aggregate, we expect Phase 2 to cost approximately $200 million to build, funded entirely with tax-exempt debt, and that generated approximately $40 million of annual EBITDA once complete. And closing out with Longridge. Longridge generated $10.4 million in EBITDA in Q1 versus $5.1 million in Q4. Power plant operations were steady at the 98% capacity factor, while gas production continued to be managed down during the quarter in the currently lower gas price environments. Remember, at gas prices of under $1.50 per MMBTU, our profit on third-party sales is less meaningful, so we limit production and opt to keep excess gas in the ground. Most importantly, we've been actively advancing a handful of significant opportunities with on-site power customers at Longridge, which will have a significant positive impact on EBITDA. We continue under a letter of intent with the data center developer for the lease of property and utilization of a substantial portion of our power capacity. The LOI is a key step toward the execution of what we expect to be a long-term binding agreement. On a macro level, data center demand in the PJM region alone is projected to go from 3 gigawatts of power needs currently to nearly 17 gigawatts over the next five to six years. New renewable resources will simply not be sufficient to meet this demand, and owners of modern, efficient gas plants like Longridge have the potential to benefit greatly in the coming years. To wrap up, we're pleased with the quarter and expect you to and the quarters ahead to reflect our continued momentum. I'll turn the call back over to Alan. Thank you, Ken. Didi, you may now open the call to Q&A.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from Juliano Bologna of Compass Point. Your line is open.