FTAI Infrastructure Inc.

Hello, and welcome to FTIA Infrastructure Third Quarter 2024 Earnings 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 the 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 question, please press star 11 again. I would now like to hand the conference over to Alan and Judy, Investor Relations. You may begin.

Thank you, Tawanda. I would like to welcome you all to the FTI Infrastructure third 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 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.

All right. Thank you, Alan. Good morning, everyone, and welcome to our third quarter 2024 earnings call. For the call today, I'll be referring to the earnings supplement, which you can find posted on 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 November 19th to the holders of record on November 12th. Now on to the results. We recorded adjusted EBITDA of $36.9 million in the third quarter, a new quarterly record. up 8% from the second quarter of 2024, and up 50% year-over-year from the third quarter of 2023. We're pleased with the results, but we're even more excited about the opportunities that lay ahead. Third quarter was a significant one in terms of momentum we established across our companies with a number of events positioning us for substantial growth next year and beyond. Across our portfolio, we now have line of sight under executed contracts and commitments representing approximately $70 million of incremental annual EBITDA. which when combined with our current run rate represents total company annual EBITDA of approximately $220 million. And the pipeline for new business is as strong as ever. Today we are pursuing more new business opportunities than any time since the spinoff of our company. If we're successful in converting these opportunities into contracted business, we estimate annual EBITDA potential in excess of $300 million. These estimates exclude the impact of any new investments or acquisitions we may act on, such as tuck-in acquisitions at Transtar, or data center developments at Longridge. In terms of the highlights at each segment, Transtar delivered another strong quarter, posting $21.1 million of adjusted EBITDA. Car loads and rates for the quarter held steady while third-party revenue continued to grow. Our focus at Transtar is to maintain organic EBITDA growth in the range of 15% annually and drive further value creation through accretive investments and acquisitions. We continue to actively pursue a number of acquisition opportunities and have added resources to the M&A team, to ensure we are well-positioned to act on opportunities as they arise. At Jefferson, EBITDA was $11.8 million for the quarter. Construction of our two contracted projects is proceeding on budget and on time for revenue service commencing in the spring and summer of 2025. Once operational, these two projects will contribute a total of $20 million of annual EBITDA under five-year and 15-year terms. During Q3, we also entered into advanced negotiations on a number of projects involving volumes of both conventional and renewable products. These new business opportunities, if successfully contracted, represent another $60 million of annual EBITDA at Jefferson. At Rapano, the third quarter was a pivotal one with the execution of our first long-term contract for our Phase II transloating system. With the first contract in hand, we've commenced construction of the system and are in active discussions with several additional parties for the remainder of the system's capacity. We plan to raise all financing for Phase II construction in the tax-exempt debt markets in the coming months, and the commercial landscape is extremely favorable, positioning us to have multiple contracts in place by year-end. And finally, at Longridge, we generated $11.1 million of EBITDA for the quarter, reflecting a nearly perfect capacity factor of 99%. I'll talk about our upcoming financing plans at Longridge here shortly, but suffice to say we have ambitious plans for Longridge in the coming quarters and believe the asset has tremendous upside potential. On to the balance sheet. We had a total debt of $1.5 billion at September 30th. $567 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 $925 million of debt was at Jefferson and $44 million was at Rapano. We're planning a number of accretive debt financings in the coming months, and I'm going to briefly talk about each. First, at Rapano, we will issue $300 million of low-cost taxes and debt to fund the Phase II construction. The financing is slated to be launched in November and should close in December, and will fully fund all required capital needs. Second, at Longridge, we're preparing to refinance existing debt, reducing our overall fixed charges and providing meaningfully more flexibility. In conjunction with the Longridge financing, We plan to also convert our existing power sale hedges into new arrangements that reflect a higher price received for the power we generate and therefore results in higher cash flow at Longridge. To explain this opportunity more specifically, at Longridge we sell power today under a series of financial contracts or hedges that we entered into at the time we started construction and that were required in order to arrange the initial debt funding to build the power plant. Those hedges are still in place today and are set at a price equal to approximately $28 per megawatt hour, a figure well below current market prices. In conjunction with the refinancing of our existing debt, we have an opportunity to reset the price of power by entering into new hedges closer to current market prices. Depending upon the final financing terms and pricing of the new power hedges, we anticipate the financial impact will be substantial. Our goal is to consummate the financing in new power hedges prior to year end. And finally, upon completion of the Rapano and Longridge financings, both of which we expect to be accretive and credit enhancing, we plan to refinance our corporate bonds and existing preferred to reduce fixed charges and increase cash flow after debt service for common shareholders. I'm going to talk through the detailed results at each of our segments, and then I will plan to turn it over for questions. Starting with Transtar in Flight 7 of the Supplement, Transtar posted revenue of $44.8 million and adjusted EBITDA of $21.1 million in Q3, compared with revenue of $45.6 million and adjusted EBITDA of $22.1 in Q2. Car load volumes and average rates held steady for the quarter, and we expect the environment for volumes and rates to remain strong for the remainder of the year. Operating expenses were also stable, as fuel costs and other material costs were largely unchanged for the quarter. Third-party customer activity continues to grow with our rail car repair facility in Pittsburgh and new transloading locations all ramping up. At our transload facility in Michigan, we're completing an expansion this quarter to take the number of car slots for transloading from 15 slots to 90 slots as initial customer demand for truck-to-rail transshipments has exceeded our existing capacity. All in, we're currently expecting fourth quarter EBITDA to come in higher than the third quarter EBITDA and anticipating maintaining a roughly 15% organic growth rate next year with incremental growth driven by M&A opportunities as they arise. Now on to Jefferson. Jefferson generated $19.7 million of revenue and $11.8 million of adjusted EBITDA in Q3 versus $21.2 million of revenue and $12.3 million of EBITDA in Q2. Reduced volumes for the quarter were the result of lower refined products exports as Exxon performed maintenance at one of their Beaumont production units, as well as fewer crude oil trains, which we now expect to receive in Q4. Lower volumes had little impact on revenue as all of our contracts contained minimum volume requirements, which mitigated the majority of volume shortfalls. We expect throughput in the fourth quarter to return to over 200,000 barrels per day. Our two contracts representing 20 million of incremental annual EBITDA commence in the spring and summer of next year, and we're currently in late-stage negotiations for additional contracts with multiple parties to handle conventional crude, refined products, and renewable fuels. If we're successful in converting these opportunities to business wins, we'll post annual EBITDA in excess of $100 million, far exceeding our prior targets. Now under APONA, we signed our first contract for our Phase 2 export system during Q3. We expect to execute a number of additional contracts during the fourth quarter. Construction of the Phase 2 system has commenced. Assuming full utilization and rates consistent with those already executed, Phase 2 can contribute $60 to $70 million of annual EBITDA once complete. Total estimated construction costs of $300 million will be funded in the tax exempt markets, as I described earlier. In the current capital markets environment, we're expecting interest rates in the range of 5% to 6%, making the Phase 2 project highly accretive to the equity value of Rapano. While Phase 2 remains our current priority, we're excited about the advancement of the next phase at Rapano, including development of additional underground storage for which we expect to complete permitting in the months to come. Finally, closing out with Longridge. Longridge generated $11.1 million in EBITDA in Q3 versus $8.8 million in Q2. As I described, power plant capacity factor was 99 for the quarter, while gas production continued to be managed down during the quarter in the currently lower gas price environment. We're advancing a number of developments that have potentially significantly increased EBITDA and cash flow at Longridge. The recent capacity auction results take effect in June next year and represent a $32 million increase in annual revenue and EBITDA, or $16 million for our 50% share. All indications are that capacity pricing will remain at higher levels for the years to come, driven both by the anticipated surge in demand for power by hyperscalers, as well as mandated retirements of coal-fired power plants. Higher capacity revenue, together with the higher power sale revenue related to our previously described refinancing, will be transformation of the cash flow profile and value proposition at Longridge. Meanwhile, we continue to advance a number of initiatives, including the uprate of the power plant to 505 megawatts, and behind-the-meter projects, including most notably negotiations with data center developers. Based on the current state of discussions, we anticipate entering into one or more transactions for data centers at Longridge during the first half of 2025. To wrap up, we're pleased with the quarter and excited about the remainder of 2024 and the 2025 year ahead. Now I will turn the call back to Alan. Thank you, Ken.