FTAI Infrastructure Inc.

Good day, and welcome to the first quarter 2025 FTAI Infrastructure Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder, this call is being recorded. I would like to turn the call over to Alan Andrini, Investor Relations. Please go ahead.

Thank you, Michelle. I would like to welcome you all to the FTAI Infrastructure Earnings Call for the first quarter of 2025. Joining me here today are Ken Nicholson, the CEO of F9 Infrastructure, and Buck Fletcher, the company's newly appointed 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 reconciliation 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.

Okay. Thank you, Alan. Good morning, everyone, and welcome to our earnings call for our first quarter of 2025. As we typically do for today's call, we'll be referring to the earnings supplement, which you can find posted on our website. Before digging into the quarterly results, I'm pleased to report that our board has authorized another quarterly dividend of 3 cents per share to be paid on May 27th to the holders of record on May 19th. I'd also like to take a minute to welcome Buck Fletcher to the company. Buck joined us officially as our new CFO in late March, and we're thrilled to have him on board. We have tremendous opportunities ahead of us on several fronts, including a number of financial and strategic objectives, and Buck comes to us with a skill set and experience that certainly will help us accomplish it all. Now on to the financial results. Adjusted EBITDA was $35.2 million for the first quarter of 2025, up 21% from the fourth quarter and up 29% from the first quarter of last year. The quarter was a highly productive one, especially at our Longridge business unit where we completed a series of important transactions that have already started to generate materially higher reported financial results. As a result of the Longridge transaction, we recorded a non-cash gain of $120 million, which is reflected in our financial statements, but we are excluding from adjusted EBITDA in today's financial discussion for comparative purposes. The gain we recorded was related to purchase accounting adjustments as a result of our acquisition of of our partner's 49.9% interest in late February and the resulting consolidation of Longridge into our financial statements going forward. We are extremely optimistic about the year ahead. As a result of the Longridge activity, as well as a number of other developments, we expect 2025 to be transformational for our company. As the bar chart on the right side of slide three illustrates, we continue to have a line of sight across our portfolio on approximately 190 million of incremental locked in annual EBITDA under executed agreements, which when combined with our first quarter results represents total company annual EBITDA of over $330 million. And the pipeline for new business continues to be healthy. If we're successful in converting new opportunities into contracted business, we continue to estimate annual EBITDA potential in excess of $400 million. Our $400 million target excludes the impact of any new investments or acquisitions we may act on, such as acquisitions at Transtar or data center developments at Longridge. On slide four, I'll briefly talk through the key highlights at each of our companies. At Transtar, adjusted EBITDA of $19.9 million was up slightly from the fourth quarter as volumes remained steady, notwithstanding the uncertain environment surrounding tariffs and the impacts on global trade. So far in the second quarter, we continue to see stable volumes from our core U.S. steel business, and we remain focused on driving growth from third parties as well as through strategic investments. At Longridge, reported EBITDA for the quarter was 18.1 million, excluding the non-cash $120 million gain, which I referred to previously. Importantly, the first quarter's results reflected only a portion of the impact of the transactions we closed in late February. We typically don't provide monthly results, but to give you a sense of the current run rate at Longridge, EBITDA for the month of March, which fully included the impact of the transactions, was over 10 million, approaching 130 million on an annualized basis. By mid-year, we expect Longridge to reach annual run rate EBITDA of approximately $160 million, which includes $30 million of annual EBITDA from higher capacity revenue, which starts on June 1st of this year. At Jefferson, EBITDA was up year-over-year but slightly lower versus last quarter as we had four storage tanks off-lease during the quarter while we transitioned them to long-term service under a new, more profitable contract that commenced on April 1st. EBITDA for the quarter would have exceeded $10 million had we had those four tanks on lease for the quarter. It's a big year ahead for Jefferson as we have $25 million of long-term annual EBITDA commencing this year under three contracts, all with minimum volume commitments. And at Rapana, we recently launched the financing for our Phase II transloading project. We're issuing $300 million of tax-exempt debt to fund construction and a number of reserve accounts and also refinancing existing debt with a new taxable term loan. Importantly, we recently signed an additional letter of intent for our Phase 2 project, bringing our total volumes under contract and LOI to just over 70,000 barrels per day and representing a total of approximately 80 million of annual EBITDA. Our new outlook is up 30 million from estimates we provided last quarter. Revenue from Phase 2 will commence upon completion of construction expected in late 2026. I'll briefly walk through the balance sheet before getting into our company's quarterly results. We reported total debt of $2.8 billion at March 31st. Debt at the corporate level is unchanged from last quarter at $572 million, with the rest of our debt at our business units non-recourse to FEPP. Transstar continues to be completely debt-free, while approximately $975 million of debt was at Jefferson and $73 million was at Rapanoe. We now consolidate the full balance sheet of Longridge and reflected total Longridge debt of $1.1 billion at March 31st. Upon completion of the Raponto financing, which we are planning for this month, we plan to refinance our corporate bonds and existing preferred stock in another accretive financing, which will reduce fixed charges and increase cash flow after debt service for common shareholders. Now on to the detailed quarterly results at each of our segments, starting with Transtar on slide seven of the supplement. Transtar posted revenue of $42.6 million and adjusted EBITDA of $19.9 million in Q1, compared with revenue of $43.3 million and adjusted EBITDA of $19.4 million in Q4. Car loads, average rates, and revenues for Q1 were largely unchanged versus last quarter. Operating expenses also continued to be stable as fuel costs and other material cost items have been largely unchanged. We expect third-party customer activity to pick up in the months to come, and we now have near-term line of sight on over a dozen third-party opportunities across Transtar's railroads, representing annual revenue of approximately 20 million and annual EBITDA of at least 10 million. Our strategic activity continues to progress. Our M&A efforts are focused on the acquisition of complementary railroads that diversify our revenue and commodity base and open up additional growth opportunities through an expanded platform. One of our primary goals has been to leverage Transtar to make highly creative investments and I'm confident we'll be successful in doing so this year. Next on to Longridge where we coupled strong operating performance in Q1 with a highly creative refinancing and an increase in our ownership of the company. Longridge generated 18.1 million of EBITDA in Q1 versus 9.9 million in Q4. Power plant capacity factor was a nearly perfect 99% for the quarter versus 87% in Q4 while gas production increased to be in line with the gas supply level required to run the power plant. We'll be bringing our West Virginia gas production online this summer, resulting in a substantial increase in gas production and allowing us to generate incremental revenue in EBITDA from excess gas sales. As I mentioned earlier, the reported results of Q1 reflect only one month of the impact of the refinancing and our ownership increase, so we expect to report significantly higher results in Q2 just by virtue of refinancing. reflecting 100% ownership. Also, higher capacity revenues kick in on June 1st, representing approximately $30 million of additional annual EBITDA. In addition, Longridge was officially fast-tracked by the PJM regulator for the 20 megawatt up rate in our power generation, meaning it's highly likely that we will receive authorization at some point here in the remainder of 2025. With the debt refinancing and consolidation behind us, we're focused on advancing multiple 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 in the coming months. Now on to Jefferson. Jefferson generated $19.4 million of revenue and $8 million of adjusted EBITDA on Q1 versus $21.2 million of revenue and $11.1 million of EBITDA on Q4. While volumes were slightly higher in the first quarter, average pricing per barrel was lower as the mix of product included a larger proportion of lower rate refined products. For the duration of the first quarter, $4. of our tanks were off-lease as Jefferson cleaned and transitioned those tanks to a new customer and product type, which commenced revenue service on April 1st. We estimate the impact of having the tanks off-lease for the quarter was approximately 2.8 million of revenue and 2.3 million of EBITDA that Jefferson did not record in the quarter. But our focus for Jefferson is on the months ahead. As discussed, we have three contracts representing a total of 25 million of incremental annual EBITDA commencing this year. In addition, we're in late-stage negotiations for additional contracts with multiple parties to handle conventional crude and refined products as well as renewable fuels, with some of these negotiations involving business that would still commence in 2025. If we're successful in converting those opportunities to business wins, we will be in a position to post annual EBITDA of approximately $120 million. Closing out with Rapano. Our commercial progress for Phase 2 is proceeding well. We have two customers signed up under long-term contracts and an additional customer under a letter of intent that we expect to convert to a long-term contract this summer. In the aggregate, these three pieces of business represent minimum volumes of 71,000 barrels per day and approximately 80 million of annual EBITDA for Phase 2. The two contracts are each for five-year terms. commencing upon completion of Phase 2 construction, while the third letter of intent is for five years with a two-year extension option at the option of our customer. As I previously mentioned, financing for Phase 2 construction is underway with Rapano's $300 million tax-exempt debt issuance currently in the market, and we expect to price and close the financing in this month of May. While phase two remains our current priority, we're excited about the advancement of the next phase of Rapano, including the development of additional underground storage for which we expect to complete permitting in the months to come. To wrap up, we're pleased with the quarter and excited about the year ahead, and I will now turn the call back over to Alan.

Thank you, Ken. Michelle, you may now open the call to Q&A.

Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to move yourself in the queue, please press star 11 again. Our first question comes from Giuliano Belloni with Compass Point. Your line is open.

Well, good morning. Congrats on the continued progress across the asset base. Maybe starting off on Rapano, I'm curious how much longer after the public hearing on May 14th do you ask me to take for the cavern approvals to come through?

Hey, Giuliano, good morning. Yeah, we're very, very close. I'm excited about it. Typically, it's a 30-day wait after the hearing date. There's a period that the final permit has to sit after the hearing, but it's typically a 30-day process. That is not sort of preordained, but we expect it to be 30 days, maybe 45 days max before we actually have the permit in hand. So it's conceivable that you know, as quickly as we have that permanent hand, we'll complete engineering and construction contracting, and we could be underway on phase three actually later this year.

That's great. Very helpful. And then pivoting over to Longridge, can you describe the type of data center deals that you're working on at Longridge and what those look like?

Yeah, definitely. Very active. The Various conversations we're having all have slightly different potential structures, but I would say the most typical structure would be where we would lease or sell the land that we own adjacent to the power plant and in addition build and provide backup power to a data center developer. What that would mean is there would not be a need to disconnect our existing 485 megawatt power plant from the grid. That's a good thing because that's an element of the transaction that could be subject to timing and a regulatory process. So by doing it this way, data center developers can be up and running more quickly. And at the end of the day, it would allow us to maintain our existing call it $160 million of EBITDA from the existing plant and gas, and then generate incremental EBITDA from the lease of land and the supply of backup power. I think we've said before our estimates are that incremental EBITDA above and beyond the existing $160 million we estimate to be in the $70 million plus or minus annual range.

That is very helpful. I appreciate that.

And then, you know, switching over to, um, Grandstar for, you know, I'm curious to get an update on the Nikon deal or anything ends up, you know, how things should play out there from a, you know, an upside perspective. Yeah. Yeah.

Yep. Well, um, look, we're encouraged by the latest, uh, out of Washington. Um, you might've seen, uh, president Trump ordered CFIUS, um, to spend a 45-day period to subject the Nippon acquisition of U.S. Steel again to an examination. He did that, I think it was back on April 6th. And so if you count 45 days from April 6th, that gets us to about two weeks from today. So, you know, we're eager to hear what the findings are. I mean, the atmospherics generally are positive. I think we've always said if Nippon is, you know, approved or otherwise, you know, an investment by Nippon is approved, you know, that can only be a good thing. It's not necessarily a bad thing for Transtar if it goes the other way, but it's probably an incrementally good thing if Nippon is approved to make an investment or otherwise acquire U.S. Steel.

That's very helpful. I appreciate it, and I will jump back in the queue.

Thank you. Our next question comes from Brian McKenna with Citizens. Your line is open.

Thanks. Good morning, Ken, Buck, and Alan. Hope everyone's doing well. The situation clearly remains fluid here, but Ken, based on everything that we know today, can you just walk through some of the puts and takes from the tariffs on your business I know there's some positives, maybe some negatives, but it'd just be helpful to get the latest here.

Yeah, good morning, Brian. I think the answer to the question is it depends. It is, of course, an uncertain environment. I think certain of our businesses are positioned to benefit from the direction global trade is going, particularly as it relates to are assets that have more direct exposure to the international energy markets and flows. You may have seen President Trump a number of weeks ago stated that one of his primary goals was, through all of this, to have it end up where Europe was committing to purchase more energy products from the United States. And I think he quoted up to $350 billion of energy products every year. Rapano is obviously best positioned to take advantage of that with natural gas liquids being shipped out of the East Coast to the European market. So I will tell you, we have seen some... positive indications at, at Rapano in particular, and some increase in interest. We've, as I mentioned on the call, we, we've signed three, um, contracts and an LOI, uh, over the past several, several months, each consecutive signing has come at a higher rate. And, uh, you know, as we've been, uh, utilizing supply and our remaining supply has diminished, we've seen customers, uh, willing to pay more for, you know, the declining supply that we have. That's a good sign. Um, you know, people want to make sure they have the supply available, uh, at Rapano or anywhere, you know, in the event energy flows to Europe, you pick up in the coming months. So encouraged by, uh, Rapano, uh, at the same time, Jefferson is also an export terminal. We export waxy crudes out of Utah. And so that business I think could also benefit Transtar. Um, You know, it's certainly a potential benefit. I mean, there was certainly some good news out of the negotiations with Great Britain yesterday for, you know, steel imports into Great Britain from the U.S., you know, looking to increase. I can't say the Gary and Mon Valley, you know, complexes at Transtar are big players in the export markets, but that doesn't mean that they couldn't be. And so that's probably only a good thing as well. At Longridge, you know, we're more focused on our internal business there and the things that we're doing. So I'm not sure, you know, tariffs are a huge plus or minus at Longridge, but I think we have a lot of opportunity at Longridge, obviously, regardless of whatever happens on the international market.

Okay. Super helpful. And then maybe just following up on Rapano, and it's good to hear all that positive commentary and It's good to see the incremental $30 million of adjusted EBITDA from that third contract. Is there any remaining capacity to contract beyond what you have today? And then thinking about the upside potential from phase two, I mean, is that $80 million the top end of the range, or could there actually be some upside to that longer term?

There's not a tremendous amount of available capacity above and beyond – the 70,000 barrels we have contracted at Emder LOI for phase two. Where there is available capacity is remaining at phase one. I'll give you sort of an example. For phase one, which of course is operating today, we have a contract with a customer who is committed to minimum volumes of 8,500 barrels per day. That customer just recently nominated for next month, I think it was over 13,000 barrels per day. We have the total capacity to handle over 20,000 barrels per day for phase one. And so that is underutilized, and there's definitely upside for phase one. I think another, call it annual, 10 million of EBITDA out of phase one if we can increase utilization closer to the 80%, 90%. For phase two, the 70,000 barrels that we have in place is not a lot of remaining capacity based on the design of phase two. That would have to come from phase three in the future.

Yeah, got it. Okay. And then just the last one for me, the 20 megawatt increase at the power plant, Long Ridge, great to hear that. That's been fast-tracked. I think you said it should be authorized at some point later in 2025. I mean, are there any other – Any more specifics you can give here? Is it 3Q, 4Q? Just trying to think through that. And then can you just remind us on the incremental earnings from the increase here?

Yep. It would likely be 4Q. I don't think it will be 3Q, but it's a great sign. I mean, our confidence level now regarding the approval for the up rate is extremely high. There were a number of plants in the PGM that were on the list for being fast-tracked and Many did not get chosen. We did. And that's very encouraging. It's about 8 million of incremental EBITDA upon the up rate. The up rate requires no capital. It could happen effectively overnight. It's a quick software change. The turbine is certainly capable today of generating up to 505 megawatts. So as soon as we're approved, we'll turn it on. Timing is not a definitive thing with the PJM. There's no specific guidance on the timetable. Based on everything we're hearing, I would expect it would be late this year.

Okay. I'll leave it there. Thanks, Ken.

Thank you. Our next question comes from Greg Lewis with BTIG. Your line is open.

Yes. Thank you, and good morning, and thanks for taking my questions. You know, Joe, I was hoping to get a little bit more color around TRANSTAR, i.e., the $10 million of adjusted EBITDA site, is that, I guess, a couple things there. Is that going to require any CapEx on the part of Transstar, or is that just really squeezing more money out of the existing footprint?

It is no additional capital. Certainly no material additional capital. We're talking maybe tens of thousands of dollars or $100,000 for a certain project here or there. There are, as I said, over a dozen projects. We keep an active list. That active list probably has 30 to 40 opportunities. But in terms of the near-term activities that we expect to turn on, This year, you know, it's well over a dozen. The opportunities are across a number of the railroads at Transtar. Some, most are regarding new freight business, transloading or, you know, just serving new customers. And then a portion, I would say maybe 20% of the opportunities are additional mechanical work. um, uh, primarily at our new car repair shop on the union railroad in the Pittsburgh area. So it's nice to have diversity across many different railroads. You know, we've, we've, these are the types of things where, you know, you have to pursue them for, you know, a number of months before they actually kick in and, and, and come to fruition. But once they've kicked in, they tend to be very sticky. And so, uh, you know, we're always, we're always adding to the list of opportunities and, uh, been staffing up at Transtar. So I'm pretty encouraged. I think we're going to have some good momentum ahead.

Okay, great to hear. And then a little bit of a broad question, but you called out the $2 million off hire at Jefferson. As we look out over the next few quarters, just so we're kind of all on the same page, are there any other contract roll-offs across, I guess, maybe Transtar, Jefferson, and I don't think Longridge? or plan maintenances that we should be aware of as we look out over the next couple quarters?

Nothing across Jefferson. The only, you know, consistent maintenance outages we have are really at Longridge, where every six months or so we have a brief maintenance outage that can last anywhere from three, four, five days to up to 10 days or so. It's a pretty typical thing. It's required. And we take those maintenance outages every six months. We try to manage to take those outages at times when we can dovetail it nicely with gas production or otherwise so that it has a minimal financial impact. We are going to take a maintenance outage here in the second quarter at Longridge. Again, don't expect it to have a material financial impact for the quarter. We expect certainly the full impact of the consolidation of Longridge to by far, you know, overwhelm, you know, any impact from a maintenance outage. Outside of that, no. No meaningful contract roles or episodes like we had in the first quarter with Jefferson.

Okay, great. Thank you very much.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Alan Andrini for closing remarks.

Thank you, Michelle, and thank you all for participating in today's call. We look forward to updating you after Q2.

Thank you for your participation. You may now disconnect. Everyone, have a great day.