FTAI Infrastructure Inc.

Good day and thank you for standing by. Welcome to the second quarter 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 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today. Alan Andrini, Investor Relations. Please go ahead.

Thank you, Victor. I would like to welcome you all to the FTI Infrastructure second 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 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 the 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, Alan, and good morning, everyone. This morning, we will be discussing our financial results for the second quarter of 2024. 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 August 20th to the holders of record on August 12th. Now, on to the results. We continued strong momentum in 2Q, recording adjusted EBITDA prior to corporate expenses of $41.8 million. up 15% from the second quarter of 2023, and up 12% sequentially from the first quarter of 2024. Each of our businesses performed in line with or slightly ahead of our expectations for the quarter. Looking forward, we expect the second half of 2024 to demonstrate continued momentum across all four companies as a result of new business wins and initiatives we have underway to capitalize on a series of macro trends. Our thesis has always been to own and control core infrastructure in major markets with strong competitive positions, long-term contracted cash flow, and a broad spectrum of opportunities to act upon to drive incremental growth. Whether it is new energy flows through our Jefferson and Rapano assets, data centers, and surging demand for power at Longridge, or a growing list of strategic opportunities at Transtar, we believe our portfolio of companies today is at the center of the largest set of opportunities since the inception of our company. We continue to forecast generating an excess of $200 million of run rate annual EBITDA by the end of 2024 and expect to meaningfully exceed that result in 2025. In terms of the highlights of each segment, Transstar delivered another strong quarter, posting $22.1 million of adjusted EBITDA. Car loads for the quarter held steady while average rates came in at another new record. The second quarter represented the first full quarter of operations at a rail car repair facility on the Union Railroad in Pittsburgh. We expect this facility, as well as a handful of others in development, to represent meaningful EBITDA growth for the car repair business. Also, we continue to grow our third-party customer base at Transtar, adding a number of new customers in Q2. At Jefferson, EBITDA was $12.3 million for the quarter as we handled record volumes, averaging 215,000 barrels per day of crude oil and refined products. During the quarter, we completed a new financing at Jefferson, accomplishing a number of objectives, including refinancing near-term maturities, funding construction projects, and funding a tender offer at a discount for some of Jefferson's existing tax-exempt bonds. At Rapano, we are preparing to start construction on our Phase II cryogenic tank in this third quarter. We're in the process of arranging all financing, and the commercial landscape is extremely favorable, positioning us to have multiple contracts in place when we close the financing. And finally, at Longridge, results for 2Q include a scheduled maintenance outage in May and limited third-party gas sales, but do not reflect the tremendous upside inherent in the asset. This week, the results of the recent capacity auction were made public, coming in at a level 10 times higher than current capacity pricing and reflecting the surge in demand for power driven by AI-focused data centers. I'll talk in more detail in a bit, but the capacity auction results alone represent approximately $32 million in of incremental EBITDA for Longridge, or approximately $16 million for our 50% share of the asset for the 2025 to 2026 capacity season. Briefly onto the balance sheet, we had total debt of $1.6 billion at June 30th. $564 million of debt was at the corporate level, while the rest of our debt was at our business units. Transtar continues to be completely debt-free, while approximately $948 million of debt was at Jefferson and $50 million was at Rapano. The Jefferson financing that we completed in Q2 enabled us to accomplish three things. First, we refinanced a small portion of existing debt coming due next year. Second, we funded construction activity in connection with two recently signed contracts. And third, we funded the tender offer, capturing some of the trading discount in Jefferson's outstanding tax exempt bonds, which carry lower coupons. We expect to opportunistically pursue more tender offers in the coming quarters to capture additional discount and increase our equity value in Jefferson. I'll talk through the detailed results at each of our segments and then plan to turn it over to questions. Starting with Transtar on slide 7 of the supplement, Transtar posted revenue of $45.6 million and adjusted EBITDA of $22.1 million in Q2, compared with revenue of $46.3 million and adjusted EBITDA of $21.7 million in Q1. Carload volumes held steady while average rates registered a new record of $667 per carload. We expect the overall environment for carlets to remain strong during the second half of this year with U.S. steel production levels steady and third-party customer activity growing. Operating expenses were stable as fuel costs and other material cost items were largely unchanged for the quarter. At Transtar, we're making good progress on our various initiatives to drive incremental revenue and diversify our customer base. 2Q was our first full quarter of operations at our new rail car repair facility on our Union Railroad. During the quarter, we handled a total of 816 rail cars. Given the demand outlook, we're preparing to introduce a second shift at the facility, which will provide capacity now to handle up to 1,800 cars per quarter. During the quarter, we continue to add new third-party customers and expect to add a half a dozen more in the second half of this year, further diversifying our revenue base. And finally, on June 1st, we commenced 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 the potential to contribute meaningfully to EBITDA in the near to mid-term. With a good path for organic growth in front of us, we're increasing our focus on the strategic front, staffing up our corporate development team and engaging with multiple parties. Transstar is an excellent platform for acquisitions of other short-line and regional rail assets, and we hope to act on one or more opportunities in the coming quarters. Now on to Jefferson. Jefferson generated $21.2 million of revenue and $12.3 million of adjusted EBITDA on Q2 versus $18.6 million of revenue and $6.8 million of EBITDA on Q1. Both throughput volume and revenues came in at new records. Approximately two-thirds of our volume for the quarter was in refined products, with the other one-third in crude oil. We generate higher rates for handling crude, so the revenue mix was approximately 50-50. We continue to see a pickup in volumes of waxy crudes from Utah and are bullish about the future. In 2Q, Jefferson became the first terminal in the United States to load waxy crudes for exports. Following that successful initial shiploading, the customer requested three additional cargoes that occurred during the quarter. With our unique handling capabilities, Jefferson opens a major gateway for waxy crude exports, and we're working with producers in the Uinta Basin to create long-term, consistent flows through Jefferson to international markets. The new business environment at Jefferson remains extremely attractive, and we're advancing more opportunities for both conventional energy products as well as clean fuels. Two recently executed long-term contracts will commence in 2025, representing $20 million of annual EBITDA. One contract relates to the export of clean ammonia at our Jefferson South terminal, and the other relates to crude oil flows through our Southern Star pipeline. More importantly, we are now currently negotiating additional contracts representing approximately $60 million of annual revenue that 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. Now on to Rapano. As Phase I operations continue, we're preparing to start construction of our much larger Phase II transloading system. As a result of increased demand that we are seeing, we have expanded the scope of Phase II to accommodate higher volumes and now expect the Phase II system will provide capacity for transloading up to 75,000 barrels per day of natural gas liquids, including propane, butane, and other products. Total construction costs are expected at $250 to $275 million, which will be funded entirely with tax exempt debt. Assuming full utilization and rates that we are negotiating with counterparties, Phase 2 can contribute approximately $75 million of annual EBITDA once complete, meaningfully more than our initial expectation of $40 million based on contracts currently being finalized. In closing out with Longridge, Longridge generated $8.8 million in EBITDA in Q2 versus $10.4 million in Q1. Our power plant capacity factor was 69% for the quarter as the plant went through scheduled maintenance for the bulk of the month of May. Were it not for the maintenance outage, EBITDA at Longridge would have exceeded Q1. Gas production continued to be managed down during the quarter in the currently lower gas price environment. More importantly, we have been experiencing a number of developments that have the potential to significantly increase EBITDA and cash flow at Longridge. This week, capacity auction results were reported with capacity pricing for the mid-2025 to mid-2026 period announced at a nearly 1,000% increase versus current pricing. To put that in perspective, today Longridge generates capacity revenue of just under $5 million annually. Under the new pricing environment, our annual capacity revenue at Longridge will be $37 million annually. for the 2025 to 26 season, with the incremental $32 million dropping entirely to the bottom line. The increase in pricing is a result of several factors, including the anticipated surge in demand for power in our region as a result of AI data centers and retirements of coal-fired power plants. While we're benefiting from the higher capacity price environment, we've also been making good progress on landing tenants directly for one or more onsite behind-the-meter data center projects. At Longridge, we own ample acreage adjacent to our power plant and continue to engage with multiple parties for the lease of property and utilization of a substantial portion of our power generation. Data center demand in the PJM region is projected to exceed 15 gigawatts over the next five years, and efficient, readily available 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 the remainder of 2024 to reflect continued momentum. I'll turn the call back to Alan. Thank you, Ken.