Yahoo Finance FTAI Infrastructure Inc. (NASDAQ:FIP) Q3 2023 Earnings Call Transcript
FTAI Infrastructure Inc. (NASDAQ:FIP) Q3 2023 Earnings Call Transcript October 27, 2023
Operator: Good day, and welcome to the Q3 2023 FTAI Infrastructure Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the call over to Alan Andreini, Investor Relations. You may begin.
Alan Andreini : Thank you, Michelle. I would like to welcome you all to the FTAI Infrastructure third quarter 2023 earnings call. Joining me here today are Ken Nicholson, the CEO of FTAI Infrastructure; and Scott Christopher, the company's CFO. We have posted an investor presentation and 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 and 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.
Ken Nicholson : Thank you very much, Alan, and good morning, everyone. This morning, we'll be discussing our third quarter financial results and also providing an update on the latest developments at each of our business segments. For this call, I'll be referring to the third quarter supplemental materials recently posted to our website. To kick things off, I'm pleased to report that our Board has authorized a $0.03 per share quarterly dividend to be paid on November 16 to the holders of record on November 9. On to the financial results. Adjusted EBITDA prior to corporate expenses came in at $32.2 million for the quarter and $98.8 million for the 9 months year-to-date. Our year-to-date results are up 25% versus last year, with each of our 4 segments demonstrating growth.
Reflecting on the results, while the headline third quarter numbers may not show it, I believe this was our most productive quarter since the spin-off of our business in August of last year. And our accomplishments during the quarter as it relates to new executed contracts set the stage for a strong fourth quarter and 2024 year ahead. At each of our segments, we continued to advance a number of growth initiatives and more importantly, executed a number of long-term contracts, several of which have already begun to contribute to our revenue and earnings here in 4Q. Looking forward, we are targeting adjusted EBITDA to grow meaningfully in the coming quarters based on these events. In the near term, we expect adjusted EBITDA to be up 10% to 20% sequentially in the fourth quarter.
And we continue to target reaching a run rate of $200 million of the annual adjusted EBITDA from our segments early next year, with no additional capital required to meet that target. In terms of the highlights of each segment, Transtar reported $17.4 million of adjusted EBITDA, down a bit from an extremely strong 2Q and up from Q1 of this year. Operationally, Transtar had an excellent quarter, and worried not to the United Auto Workers strike that commenced late in the quarter and higher fuel costs for which we will be reimbursed in the coming months. The quarter would have been more in line with 2Q results. At Jefferson, EBITDA grew as the ramp-up of our business continues. More importantly, during the quarter, we executed a number of new contracts, representing in excess of $20 million of incremental adjusted annual EBITDA.
A portion of these contracts commenced this month and will contribute to our results in Q4 and going forward. At Repauno adjusted EBITDA loss continued to narrow while we made significant progress on our Phase 2 expansion project that will transform our business and long-term EBITDA generation. And finally, at Long Ridge, normal operations continued, and we reported $8 million of adjusted EBITDA, reflecting minimal third-party gas sales given the lower overall market prices for natural gas. Briefly on the balance sheet. In the aggregate, we had $1.3 billion of debt at September 30 and no near-term maturities. Approximately $750 million of debt was at our Jefferson segment and $25 million was at Repauno. At both of these entities, debt is nonrecourse to the parent, carried low coupons and long duration, and is not callable in the event of the sale of the business.
In essence, we do this debt as an asset. In addition, our Transtar Freight Rail business is completely debt free, meeting all cash generated at the business can be distributed up to FIP with no limits or restrictions. I'll spend a few minutes providing more details on each of our segments now and then plan to turn it over to questions. I'll start with Transtar on Slide 7 of the supplement. Transtar posted revenue of $41.9 million and adjusted EBITDA of $17.4 million in Q3, down from revenue of $42.5 million and adjusted EBITDA of $20.3 million in Q2. Carload volumes grew for the quarter, while average rate for carload declined as the mix of freight was impacted somewhat with higher margin projects related to the auto sector being softer in the quarter as a result of the UAW work stoppage.
Operating expenses for the quarter were higher as a percentage of revenue, driven primarily by events that we believe were unique. The largest variance was in fuel expense, which was higher given the overall higher price of diesel during the quarter. While we passed through this cost to our customers, we received reimbursement a few months after incurring the expense, so we will see the fuel effect reverse itself here in Q4. Away from U.S. Steel, we also continue to make good progress on multiple initiatives at Transtar to drive incremental third-party revenue and EBITDA. The bar chart on the right of Slide 7 of the supplement shows the incremental EBITDA we expect from each initiative. In total, we expect these programs to represent approximately $7.5 million of quarterly adjusted EBITDA or $30 million on an annual basis commencing in 2024.
Now on to Jefferson. Jefferson generated $16.6 million of revenue and $7.8 million of adjusted EBITDA in Q3 compared to $17.1 million of revenue and $7.1 million of EBITDA in Q2. The P&L at Jefferson continued to demonstrate a shift to increased volumes of refined products versus crude oil. Transloading rates for refined products are typically lower on a per barrel basis for Jefferson, given the process involves no heating or blending as crude often does. For refined products also generated a high margin since the operating costs associated with refined products are quite low. For Q3, you'll see we posted lower revenue due to this dynamic but continue to grow EBITDA due to the lower operating expenses. But the more important development during Q3 was on the new business front.
We secured 3 new contracts at Jefferson which in total represent $20 million of long-term annual adjusted EBITDA. While the third quarter did not contain any EBITDA from these new contracts, 3 of the 2 contracts have already commenced at this stage in Q4. So we'll see the positive benefits in our Q4 results ahead. The third contract is at our newly acquired Jefferson South site where we secured a new 15-year contract for the transloading and export of hydrogen-based clean fuels commencing in 2025. Another highlight at Jefferson is the recent return of Canadian crude volumes after almost 2 years of absence. Canadian crude handling is a very high-margin business for us, and this quarter, we'll be handling multiple unit trains of Canadian crude oil that we hope represent more consistent flow from the Canadian market as rail volumes pick up and pipelines out of the region are constrained.
In summary, we're bullish on Jefferson and continue to execute on the lease-up of the remainder of our capacity. We're seeing something we've been waiting to see for quite a while now for the terminal, competition for our capacity. At Repauno, we continue to narrow our operating loss. Our Phase 1 multiyear contract to translate natural gas liquids is continuing smoothly. That contract with an investment-grade counterparty has minimum volume commitments and does not expose Repauno to commodity prices. With this Phase 1 having commenced Repauno's finalizing contracts for its much larger Phase 2 transloading system. As detailed on Slide 9 of the supplement, our Phase 2 system is expected to materially increase our storage through for capacity when it comes online in 2 years.
In the aggregate, we expect Phase 2 to cost approximately $200 million to build and to generate in excess of $40 million of annual EBITDA once complete. Moving on to Long Ridge. Long Ridge generated $8 million in EBITDA in Q3 versus $10.4 million in Q2. Power plant operations were steady, while gas production continued to be managed down during the quarter in the currently lower gas pricing environment. Gas prices of under $1.25 per MMBtu. Our profit on third-party sales is less impactful. So we have deliberately limited production and opted to keep excess gas in the ground and anticipation of higher gas prices, which are typical as we enter the winter season. We're taking a planned maintenance outage here in the fourth quarter, so our results will see some impact from that outage, but we expect the outage to be routine with the next outage scheduled for the late spring.
At Long Ridge, we're focused on wrapping up financing for our recently acquired gas resources in West Virginia. We expect to have final debt commitments in place in tier in Q4 at an extremely attractive rate. So that positions us well to start gas production when prices recover. We also continue to progress a number of initiatives at Long Ridge. We're expecting final approvals in the coming months for the upgrade of the power plant of 505 megawatts, an increase of 20 megawatts from our current generation capacity. That will contribute incremental EBITDA in the range of $5 million to $10 million annually based upon current forward curves for the price of power. Over the longer term, we're seeing increased interest from behind-the-meter customers, including data center developers and companies focused on energy transition opportunities.
To wrap up, we're pleased with our direction as we enter the final quarter of 2023 and excited about the things to come in the next year ahead. With that, let me turn the call back to Alan.
Alan Andreini : Thank you, Ken. Michelle, you may now open the call to Q&A.
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