MIC Reports Fourth Quarter And Full Year 2018 Results

NEW YORK, Feb. 20, 2019 /PRNewswire/ -- Macquarie Infrastructure Corporation (NYSE: MIC) reported financial results for 2018 that were in line with the Company's guidance.

Net income from continuing operations declined to $64.6 million in 2018 from $433.8 million in 2017 primarily as a result of the absence of a $316.4 million tax benefit related to the enactment of the Tax Cuts and Jobs Act in December 2017.

Cash generated by continuing operating activities increased $9.1 million to $473.2 million in 2018 versus 2017 as a result of favorable movements in working capital including improved collection of higher balances.

MIC's continuing operations consist of International-Matex Tank Terminals (IMTT), Atlantic Aviation, the businesses comprising its MIC Hawaii segment and several smaller businesses that individually and collectively do not constitute a reportable segment and are recorded as components of Corporate and Other. Results for the businesses previously reported as the substantial components of Contracted Power have been characterized as Discontinued Operations in the current and prior comparable periods and the Contracted Power segment has been eliminated.

Christopher Frost, MIC's chief executive officer, said of the Company's results for 2018: "Our financial results were in line with our expectations and reflect an ongoing focus on our strategic priorities. In particular, the repurposing and repositioning initiatives at IMTT are reinforcing the infrastructure characteristics of that business."

"The sales of the Bayonne Energy Center and smaller, non-core businesses in 2018 provided at least two years of funding for attractive growth opportunities across all of MIC. These proceeds have also been used to reduce MIC's overall indebtedness and, combined with the successful refinancing and amendments to debt facilities at Atlantic Aviation and IMTT, respectively, in December, significantly increased our financial flexibility. In short, we are well-positioned to continue to support our current dividend and to invest in increasing the cash generating capacity of our operating businesses with low reliance on additional debt issuance," Frost added.

Non-GAAP Metrics

EBITDA excluding non-cash items from continuing operations decreased to $569.5 million in 2018 from $618.5 million in 2017 reflecting primarily:

• a reduction in storage capacity utilization at IMTT;
• the previously disclosed write-down of a business in the MIC Hawaii segment and the operating losses related to that business;
• higher costs related to the evaluation of various investment and acquisition/disposition opportunities, primarily the sale of BEC; and,
• approximately $4.0 million of costs incurred for advisory services in connection with addressing various shareholder matters.

The above items were partially offset by an increased contribution from Atlantic Aviation and the absence of costs incurred during 2017 related to the implementation of a shared services center.

Adjusted EBITDA excluding non-cash items from continuing operations totaled $601.9 million in 2018 compared with $636.3 million in 2017. Adjustments exclude items such as transaction related costs and the write-down of an investment in a business that was sold. Adjusted EBITDA excluding non-cash items, together with MIC's proportionate interest in the businesses reported in Discontinued Operations, totaled $688.6 million.

MIC reported Adjusted Free Cash Flow from continuing operations of $439.5 million, down 13.9% from $510.3 million in 2017, on higher interest expense, higher maintenance capital expenditures and higher taxes. Adjusted Free Cash Flow, including MIC's proportionate interest in the businesses reported in Discontinued Operations, totaled $498.5 million.

See Summary Financial Information below.

Dividend

The MIC Board of Directors authorized a cash dividend of $1.00 per share, or $4.00 annualized, for the fourth quarter of 2018. The dividend will be payable on March 7, 2019 to shareholders of record on March 4, 2019. The Company initiated guidance for a quarterly cash dividend of $1.00 per share in 2019.

Full Year 2018 Results and Strategic Initiatives

International-Matex Tank Terminals

IMTT generated EBITDA excluding non-cash items of $286.6 million in 2018, down 12.1% versus 2017, primarily as a result of a previously disclosed decline in capacity utilization and slightly lower average storage rates. Free Cash Flow produced by IMTT declined 23.2% to $200.5 million as a result of the reduction in earnings together with higher interest expense, taxes and maintenance capital expenditures including those related to repurposing storage capacity.

Bulk liquid storage capacity utilization was 82.0% in the fourth quarter of 2018 and averaged 84.6% in 2018, consistent with guidance for "mid 80s percent" utilization provided early in the year.

MIC announced that its IMTT subsidiary has entered into agreements for the development of new storage capacity and capabilities that will significantly enhance the operations of two of the business' terminals on the Lower Mississippi River. The agreements will see IMTT deploy approximately $75.0 million of growth capital over the upcoming 12 to 24-month period.

At its Avondale, LA terminal, IMTT will construct storage capacity and related infrastructure including a new ship dock in support of a palm oil processing facility being developed on land leased by IMTT to Fuji Vegetable Oil ("Fuji"). The project features 87,000 barrels of new capacity being built pursuant to a 30-year use agreement with Fuji and 100,000 barrels of existing capacity that is expected to be used by a feedstock supplier. The facility is expected to be in service in late 2020.

IMTT has leased 442,000 barrels of capacity, including 80,000 barrels of capacity to be constructed, at its terminal in Gretna, LA to a customer who will market highly refined oils through the terminal. As a part of the long-term agreement IMTT will also construct a truck loading facility in support of the customer. The project is expected to be in service in early 2020.

Both the Avondale and Gretna projects are a part of ongoing efforts to invest in the infrastructure of IMTT and are subject to customary pre-construction permitting.

Atlantic Aviation

Atlantic Aviation generated EBITDA excluding non-cash items of $264.7 million in 2018, an increase of 7.0% compared with 2017, driven by full-year contributions from acquisitions of fixed base operations in 2017, increased hangar rental income and ancillary services fees.

Free Cash Flow produced by Atlantic Aviation increased slightly with the higher earnings substantially offset by higher taxes and interest expense. Excluding airports at which traffic was restricted as a result of runway closures for portions of the year, flight activity at the airports on which Atlantic Aviation operates increased by 0.6% in 2018 based on data reported by the Federal Aviation Administration.

MIC Hawaii

MIC Hawaii generated EBITDA excluding non-cash items of $37.3 million in 2018, down 38.5% versus 2017, including $17.1 million of write-downs and approximately $5.5 million of negative EBITDA, both related to a mechanical contracting business that was sold in November. These were partially offset by increased utility margins at Hawaii Gas resulting from a rate increase implemented in July 2018.

Free Cash Flow produced by MIC Hawaii declined 42.3% to $22.4 million as a result of the losses generated by the mechanical contractor, and higher maintenance capital expenditures and interest expense, partially offset by a decrease in cash taxes.

Corporate and Other

MIC's Corporate and Other segment generated EBITDA excluding non-cash items of $(19.1) million in 2018, compared with $(15.5) million in 2017, primarily as a result of higher transaction expenses and professional fees related to addressing various shareholder matters, partially offset by the absence of costs associated with the implementation of a shared services center. Free Cash Flow produced by Corporate and Other declined 80.9% to $(20.5) million as a result of higher interest expense and a reduced tax benefit.

The Corporate and Other segment includes primarily fees payable to MIC's Manager, professional fees and expenses associated with being a public company and any revenue or expense associated with smaller businesses that individually or collectively do not constitute a reportable segment. MIC also reports transaction related expenses, any profit-share income to which MIC was entitled related to the sale of renewable power generation projects by a third-party developer and shared services costs not otherwise allocated to operating companies, in its Corporate and Other segment.

In December, MIC announced that it had completed the refinancing of the primary debt facility of Atlantic Aviation and extended the maturity dates of two of three facilities at IMTT. These actions extended the weighted average maturity of MIC's debt to 5.7 years and provided the capital to fund the repayment of $349.9 million of convertible notes due in July 2019. Following the repayment of the convertible notes, MIC does not currently have any debt facilities that mature prior to 2022.

Discontinued Operations

In October 2018 MIC completed the sale of the Bayonne Energy Center (BEC) and commenced a sale process involving its solar and wind power generation facilities. These businesses, all of which had been reported as components of MIC's Contracted Power segment, were classified as Discontinued Operations and the Contracted Power segment was eliminated. The Company's financial results for 2018 and the prior years have been restated to reflect the impact of these changes.

The Discontinued Operations generated net income of $29.6 million in 2018, an increase of 32.6% compared with 2017, and EBITDA excluding non-cash items of $98.9 million, up 5.9% versus 2017. The increases were driven by contributions from the expansion of BEC and improved wind resources. Free Cash Flow produced by the Discontinued Operations increased 3.8% to $67.9 million.

2019 Guidance

MIC initiated guidance with respect to EBITDA and Free Cash Flow from continuing operations, and EBITDA by segment, for 2019. The Company expects a modest contribution from its discontinued operations (solar and wind power generation) will be additive to its guidance through the anticipated date of sale of these assets in the second quarter.

With respect to the Company's guidance for EBITDA and Free Cash Flow in 2019, a reconciliation of EBITDA to net income (loss), the most comparable GAAP measure and a reconciliation of Free Cash Flow to cash from operating activities, the most comparable GAAP measure, are not available without unreasonable effort due to the Company's limited visibility into and inability to make accurate projections and estimates of items including management fees, hedging agreements, depreciation and any (benefit) provision for income taxes. These items may vary greatly from year to year and could significantly impact MIC's results as reported in accordance with GAAP.

International-Matex Tank Terminals

Storage utilization at IMTT is expected to average in a mid-80s percent range in 2019 and to end the year in a high-80s percent range, subject to market conditions. The Company expects the improvement to be more pronounced in the second half of the year. The 2019 utilization rate estimates assume that only a portion of the storage related to a now idle refinery (owned by a third party) is leased during 2019 and that demand for bulk liquid storage increases as market participants prepare for the scheduled implementation of new rules instituted by the International Maritime Organization concerning reductions in the sulphur content of bunker fuel in January of 2020. The contribution to EBITDA associated with the recovery in utilization is expected to be partially offset by a further decline in average storage rates and higher operating costs.

In the first quarter of 2019, IMTT is expected to receive approximately $39.0 million in proceeds related to the termination of an agreement with the owner of a refinery at IMTT's terminal in St. Rose, LA. The proceeds have been incorporated into the Company's guidance for IMTT EBITDA in 2019 of between $287.0 and $297.0 million. Excluding the termination fee, EBITDA is therefore be expected to be between $248.0 and $258.0 million. The forecast decline of approximately 12% reflects primarily the loss of revenue associated with storage related to the refinery, increased expenses and lower storage rates, primarily related to the renewal of older, out of market contracts, all partially offset by improved utilization including of repurposed capacity.

Atlantic Aviation

MIC's guidance for EBITDA from Atlantic Aviation of between $275.0 and $285.0 million in 2019 assumes historically normal growth in general aviation flight activity of approximately 2.5%. The guidance does not contemplate acquisitions of additional FBOs.

MIC Hawaii

Guidance for the Company's MIC Hawaii segment for EBITDA of between $60.0 and $65.0 million in 2019 assumes a full year benefit of the rate increase implemented in the regulated portion of Hawaii Gas in July of 2018, and the absence of write-downs and losses attributable to a business that was sold in 2018, partially offset by increases in the cost of propane hedges in the unregulated portion of that business.

Growth Investments

Growth capital expenditures across the MIC portfolio are expected to total between $275.0 and $300.0 million in 2019. Of this, the Company reports having already committed to expenditures with an aggregate value of $247.0 million. Given the attractiveness of the opportunities at IMTT and the tax benefits associated with investment in high-value, physical asset backed projects, the Company estimates that the majority of its 2019 growth capital expenditures will be made in support of IMTT.

Maintenance Capital Expenditures

MIC expects the amount of capital deployed in maintaining its businesses will be between $65.0 and $70.0 million in 2019. The expected spend is higher than the long-term average for the Company primarily as a result of planned expenditures related to the refurbishment of a pier at IMTT in Bayonne, NJ. Maintenance capital expenditures are expected to remain elevated for two to three years depending of the pace of the refurbishment.

EBITDA Guidance by Segment Summarized

Free Cash Flow

MIC expects Free Cash Flow from continuing operations in 2019 to be in a range between $400.0 and $445.0 million. The guidance contemplates higher cash interest related to an increase in the interest rate on debt at Atlantic Aviation, partially offset by the anticipated repayment of $349.9 million of holding company convertible notes in July of 2019 using a portion of the proceeds raised in the Atlantic Aviation refinancing. Free Cash Flow is also expected to be reduced by higher maintenance capital expenditures in 2019 compared with 2018 primarily in relation to increased spending at IMTT associated with the refurbishment of a pier at its facility in Bayonne, NJ.

Summary Financial Information

Conference Call and Webcast

When: MIC has scheduled a conference call for 8:00 a.m. Eastern Time on Thursday, February 21, 2019 during which management will review and comment on the fourth quarter and full year 2018 results and 2019 guidance.

How: To listen to the conference call dial +1(650) 521-5252 or +1(877) 852-2928 at least 10 minutes prior to the scheduled start time. A webcast of the call will be accessible via the Company's website at www.macquarie.com/mic. Allow extra time prior to the call to visit the site and download the software needed to listen to the webcast.

Supplemental Materials: MIC will prepare materials in support of its conference call. The materials will be available for downloading from the Company's website prior to the call.

Replay: For interested individuals unable to participate in the live conference call, a replay will be available after 2:00 p.m. on February 21, 2019 through midnight on February 27, 2019, at +1(404) 537-3406 or +1(855) 859-2056, Passcode: 2276902. An online archive of the webcast will be available on the Company's website for one year following the call.

About MIC

MIC owns and operates a group of businesses providing basic services to customers in the United States. Its businesses consist of a bulk liquid terminals business, International-Matex Tank Terminals; an airport services business, Atlantic Aviation; and entities comprising an energy services, production and distribution segment, MIC Hawaii. For additional information, please visit the MIC website at www.macquarie.com/mic. MIC-G

Use of Non-GAAP Measures

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics

In addition to MIC's results under U.S. GAAP, the Company uses certain non-GAAP measures to assess the performance and prospects of its businesses. In particular, MIC uses EBITDA excluding non-cash items, Free Cash Flow and certain proportionately combined financial metrics. Proportionately combined financial metrics, including Free Cash Flow, reflect MIC's proportionate interest in its solar and wind facilities, substantially all of which are in discontinued operations.

MIC measures EBITDA excluding non-cash items as a reflection of its businesses' ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses. The Company believes investors use EBITDA excluding non-cash items primarily as a measure to assess the operating performance of its businesses and to make comparisons with the operating performance of other businesses whose depreciation and amortization expense may vary widely from MIC's, particularly where acquisitions and other non-operating factors are involved. MIC defines EBITDA excluding non-cash items as net income (loss) or earnings — the most comparable GAAP measure — before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense reflected in the statements of operations. EBITDA excluding non-cash items also excludes base management fees and performance fees, if any, whether paid in cash or stock.

Because MIC has varied ownership interest in the businesses within its portfolio of solar and wind power generation facilities (in discontinued operations) but has an obligation to report their financial results on a consolidated basis, GAAP measures such as net income (loss) do not fully reflect its proportionate share of the cash generated by these businesses. The Company notes that the proportionately combined metrics used may be calculated in a different manner by other companies and may limit their usefulness as a comparative measure. Therefore, proportionately combined metrics should be used as a supplemental measure to help understand MIC's financial performance and not in lieu of financial results reported under GAAP.

The Company's businesses can be characterized as owners of high-value, long-lived assets capable of generating substantial Free Cash Flow. MIC defines Free Cash Flow as cash from operating activities — the most comparable GAAP measure — which includes cash interest, tax payments and pension contributions, less maintenance capital expenditures, which includes principal repayments on capital lease obligations used to fund maintenance capital expenditures and excludes changes in working capital.

Management uses Free Cash Flow as a measure of its ability to provide investors with an attractive risk-adjusted return by sustaining and potentially increasing MIC's quarterly cash dividend and funding a portion of the Company's growth. GAAP metrics such as net income (loss) do not provide MIC management with the same level of visibility to into the performance and prospects of the business as a result of: (i) the capital intensive nature of MIC's businesses and the generation of non-cash depreciation and amortization; (ii) shares issued to the Company's external manager under the Management Services Agreement, (iii) the Company's ability to defer all or a portion of current federal income taxes; (iv) non-cash unrealized gains or losses on derivative instruments; (v) amortization of tolling liabilities; (vi) gains (losses) on disposal of assets, and (vii) pension expense. Pension expenses primarily consist of interest expense, expected return on plan assets and amortization of actuarial and performance gains and losses. Any cash contributions to pension plans are reflected as a reduction to Free Cash Flow and are not included in pension expense. Management believes that external consumers of its financial statements, including investors and research analysts, use Free Cash Flow both to assess the Company's performance and as an indicator of its success in generating an attractive risk-adjusted return.

In its Annual Report on Form 10-K, the Company has disclosed Free Cash Flow on a consolidated basis and for each of its operating segments and MIC Corporate. Management believes that both EBITDA excluding non-cash items and Free Cash Flow support a more complete and accurate understanding of the financial and operating performance of its businesses than would otherwise be achieved using GAAP results alone.

Free Cash Flow does not take into consideration required payments on indebtedness and other fixed obligations or other cash items that are excluded from MIC's definition of Free Cash Flow. Management notes that Free Cash Flow may be calculated differently by other companies thereby limiting its usefulness as a comparative measure. Free Cash Flow should be used as a supplemental measure to help understand MIC's financial performance and not in lieu of its financial results reported under GAAP.

See tables above and below for a reconciliation of net income from continuing operations to EBITDA excluding non-cash items from continuing operations and to Adjusted EBITDA excluding non-cash items from continuing operations and a reconciliation from cash provided by operating activities from continuing operations to Free Cash Flow from continuing operations and Adjusted Free Cash Flow from continuing operations, on a consolidated basis. Reconciliations for each of MIC's operating businesses and Corporate and Other follow.

Classification of Maintenance Capital Expenditures and Growth Capital Expenditures

MIC categorizes capital expenditures as either maintenance capital expenditures or growth capital expenditures. As neither maintenance capital expenditure nor growth capital expenditure is a GAAP term, the Company has adopted a framework to categorize specific capital expenditures. In broad terms, maintenance capital expenditures primarily maintain MIC's businesses at current levels of operations, capability, profitability or cash flow, while growth capital expenditures primarily provide new or enhanced levels of operations, capability, profitability or cash flow. Management considers a number of factors in determining whether a specific capital expenditure will be classified as maintenance or growth.

In some cases, specific capital expenditures contain characteristics of both maintenance and growth capital expenditures. MIC does not bifurcate specific capital expenditures into growth and maintenance components. Each discrete capital expenditure is considered within the above framework and the entire capital expenditure is classified as either maintenance or growth.

Forward-Looking Statements

This press release contains forward-looking statements. MIC may, in some cases, use words such as "project", "believe", "anticipate", "plan", "expect", "estimate", "intend", "should", "would", "could", "potentially", or "may" or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this release are subject to a number of risks and uncertainties, some of which are beyond MIC's control including, among other things: changes in general economic or business conditions; its ability to service, comply with the terms of and refinance debt, successfully integrate and manage acquired businesses, retain or replace qualified employees, complete growth projects, deploy growth capital and manage growth, make and finance future acquisitions, and implement its strategy; the regulatory environment; demographic trends, the political environment, the economy, tourism, construction and transportation costs, air travel, environmental costs and risks; fuel and gas and other commodity costs; its ability to recover increases in costs from customers, cybersecurity risks, work interruptions or other labor stoppages; risks associated with acquisitions or dispositions, litigation risks; risks related to its shared services initiative and its ability to achieve cost savings; reliance on sole or limited source suppliers, risks or conflicts of interests involving its relationship with the Macquarie Group and changes in U.S. federal tax law.

MIC's actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which MIC is not currently aware could also cause its actual results to differ. In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this release may not occur. These forward-looking statements are made as of the date of this release. MIC undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. MIC is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of MIC do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of MIC.

SOURCE Macquarie Infrastructure Corporation