MIC Reports First Quarter 2018 Financial Results and Strategic Update

NEW YORK, May 2, 2018 /PRNewswire/ -- Macquarie Infrastructure Corporation (NYSE: MIC) today announced its first quarter 2018 financial results including an increase in net income of 43.4% to $46.8 million from $32.6 million in the prior comparable period on lower taxes and unrealized gains on derivative instruments.

Adjusted Proportionately Combined EBITDA excluding non-cash items of $178.7 million was broadly in line with the $180.2 million recorded in the prior comparable period.

Cash generated by operating activities of $144.1 million increased 12.9% over the $127.6 million recorded in the prior comparable period largely due to favorable movements in working capital.

Adjusted Free Cash Flow, which excludes certain one-time items including transaction related costs, was $135.9 million, down 7.5% from $146.9 million in the prior comparable period and flat on the $135.5 million reported in the fourth quarter of 2017. The decline was due primarily to increased maintenance capital expenditures and higher interest expense.

MIC also announced a quarterly cash dividend of $1.00 per share, consistent with guidance provided in February 2018.

MIC Chief Executive Officer Christopher Frost said: "MIC's financial results for the first quarter of 2018 reflect the underlying strength and diversity of our portfolio of infrastructure businesses."

"Atlantic Aviation maintained its strong performance and Contracted Power delivered a better than anticipated contribution. This performance was offset by the previously forecast and disclosed reduction in contribution from IMTT and higher expenses at MIC Hawaii.  We have also taken meaningful steps to address the enhancements required at IMTT with respect to certain storage assets."

Drivers of first quarter 2018 segment results included:

• IMTT generated EBITDA of $78.1 million, down 6% compared with the first quarter in 2017, driven by the expected decline in average capacity utilization to 88.1% in the quarter versus 96.3% in the prior comparable period;
• Atlantic Aviation generated EBITDA of $70.9 million, up 9.3% over the prior comparable period, on increases in general aviation flight activity and contributions from fixed base operations acquired in 2017;
• Contracted Power generated EBITDA of $17.9 million, up 24.8% versus the prior comparable period, on better than anticipated demand for peaking power in New York and improved operating performance of wind facilities; and,
• MIC Hawaii generated EBITDA of $14.8 million, down 23.3% compared with the first quarter in 2017, driven by higher expenses.

Core Priorities

MIC provided the following additional information concerning its core priorities.

Repurposing and Repositioning of IMTT

In February 2018, MIC announced that it was undertaking initiatives related to the repurposing and repositioning of certain IMTT assets in response to shifts in global demand and trade flows impacting on IMTT's Lower Mississippi River and New York Harbor terminal locations.

The Company anticipates repurposing approximately three million barrels of storage capacity at IMTT away from primarily heavy and residual oils to gasoline and distillates, ethanol, chemicals and vegetable and/or tropical oils. Capacity utilization at IMTT is expected to average in the mid-80s percent in 2018 and to increase to the low 90s percent range in 2020, both subject to market conditions.

In 2018, IMTT is expected to invest approximately $15 million in the repurposing of storage capacity. IMTT is also expected to deploy an additional $10 to $20 million on projects designed to reposition or increase the capacity and enhance the capability of the business.

"As repurposing initiatives continue to be evaluated and the scope of capital projects refined, the forecast level of spending at IMTT in 2018 has decreased modestly.  However, we continue to expect that up to $225 million will be deployed by IMTT on repurposing and repositioning in 2018 through 2020," said Frost.

Portfolio and Capital Management

MIC noted in its fourth quarter 2017 results release that it expected to deploy approximately $350 million of capital in growth projects across all of its businesses in 2018.

Through the end of March 2018 MIC had deployed or committed to deploy approximately $50 million on projects including the acquisition (on-field consolidation) of a fixed base operation by Atlantic Aviation and the ongoing development of additional power generating capacity at BEC.

With the refinement of investment at IMTT together with revised scoping of other capital projects, MIC now believes that its growth capital deployment in 2018 will be approximately  $300 million.

MIC's construction of additional power generating capacity at BEC is nearing completion and, as announced  in February, the Company continues to evaluate strategic options regarding its Contracted Power businesses including  the sale of a portion  or all of BEC.

On April 24, 2018, IMTT closed on the sale of its OMI Environmental Solutions, Inc. subsidiary. The oil spill cleanup business had generated negative EBITDA in each of the past eight quarters. After transaction costs and other payments, IMTT is expected to receive net cash of approximately $11 million subject to adjustments for changes in working capital.

Balance Sheet Strength

Proceeds from the sale of any portion of BEC, or from smaller, non-core  assets generally, would likely be used to accelerate the de-levering of MIC from its current 4.9 times net debt to EBITDA (trailing twelve months adjusted for the full year impact of acquisitions) to a level closer to its low- to mid- four times target.

"We expect to fund our 2018 capital spending with a combination of Free Cash Flow not used to support our dividend, together with proceeds from the sale of any portion of BEC or smaller  assets in our portfolio. Any additional sale proceeds will strengthen our balance sheet and increase our financial  flexibility," commented Frost.

Guidance Reaffirmed 

MIC reiterated its guidance for 2018 EBITDA in a range between $690 and $720 million, broadly in line with 2017. The guidance reflects both the seasonality in certain businesses and the previously forecast decline in average storage utilization at IMTT over the balance of the year.

The Company also provided the following segment level buildup of its 2018 EBITDA guidance:

First Quarter 2018 Dividend

The MIC board of directors authorized a cash dividend of $1.00 per share, or $4.00 annualized, for the first quarter of 2018. The dividend will be payable May 17, 2018 to shareholders of record on May 14, 2018. The Company reaffirmed its previous guidance for a distribution of $1.00 per share in each quarter in 2018.

"Given financial and operational performance of our businesses in the quarter that were consistent with our guidance, we believe that a dividend of $1.00 per share, per quarter, is sustainable through 2018," said Frost. "As we make progress against initiatives tied to our priorities, and subject to market conditions, we believe we will be well-positioned  for future dividend growth."

Conference Call and Webcast

When: MIC has scheduled a conference call for 8:00 a.m. Eastern Time on Thursday, May 3, 2018 during which management will review and comment on the first quarter 2018 results.

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.

Slides: 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 May 3, 2018 through midnight on May 11, 2018, at +1(404) 537-3406 or +1(855) 859-2056,  Passcode: 4495099. 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 diversified 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; entities comprising an energy services, production and distribution  segment, MIC Hawaii; and entities comprising  a Contracted Power segment. 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 wind and solar facilities.

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.

Given MIC's varied ownership levels in its Contracted Power and MIC Hawaii segments, together with obligations to report the results of these businesses on a consolidated basis, GAAP measures such as net income (loss) do not fully reflect all of the items management considers in assessing the amount of cash generated based on its ownership interest in its 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 paid for interest, taxes 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 Quarterly Report on Form 10-Q, 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 "Reconciliation of Consolidated Net Income to EBITDA excluding non-cash items and a Reconciliation from Cash Provided by Operating Activities to Free Cash Flow" below.

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.

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, manage growth, make and finance future acquisitions, and implement its strategy; risks associated with development, investment and expansion in the power industry; its regulatory environment establishing rate structures and monitoring  quality of service; 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 related to its shared services initiative; 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.

"Macquarie Group" refers to the Macquarie Group of companies, which comprises Macquarie Group Limited and its worldwide subsidiaries and affiliates. Macquarie Infrastructure Corporation is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations 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 Macquarie Infrastructure Corporation.