MIC Reports Third Quarter 2017 Financial Results, Increases Quarterly Cash Dividend

NEW YORK, Nov. 1, 2017 /PRNewswire/ -- Macquarie Infrastructure Corporation (NYSE: MIC) today reported its financial results for the third quarter of 2017.

"MIC's performance in the third quarter was consistent with the first half of the year with continued strong performance at Atlantic Aviation tempered by modest headwinds at our Contracted Power business," said James Hooke, chief executive officer of MIC. "We successfully completed the acquisitions of Epic Midstream and Orion Jet Center, as anticipated, and we continue to find opportunities to put growth capital to work at a rate that should see the Company achieve full year deployments of at least $650.0 million."

"MIC's financial results for the quarter supported an increase in our quarterly cash dividend to $1.42 per share — a 10.1% uptick versus the third quarter in 2016," Hooke added. The Company reaffirmed its guidance with respect to a 10% increase year over year in its cash dividend in 2017. Management's expectation for growth in cash generation and dividends assumes the continued improvement in operating results of existing businesses, together with anticipated contributions from investments and acquisitions.

MIC reported a 14.8% decrease in net income to $36.2 million for the quarter ended September 30, 2017 compared with $42.5 million in the third quarter of 2016. The decrease reflects primarily unrealized non-cash losses on interest rate hedging contracts compared with unrealized gains on similar contracts in the prior period. The losses were partially offset by improved operating results. Through nine months of the year, MIC's net income increased 13.3% to $94.8 million.

The Company reported cash generated by operating activities of $148.5 million and $397.7 million in the quarter and nine months ended September 30, 2017, respectively, compared with $159.1 million and $437.0 million reported in the prior comparable periods. The decrease in cash from operations in the quarter reflects primarily the timing of payment of insurance premiums, higher state taxes and changes in working capital related to higher inventory costs. The impact of these was partially offset by improved operating results and contributions from acquired businesses.

MIC's businesses produced an aggregate $144.4 million and $432.4 million of Adjusted Free Cash Flow in the quarter and year to date periods ended September 30, 2017, respectively, up 9.5% and 10.4% from the amounts generated in the prior corresponding periods. The Company defines Adjusted Free Cash Flow as cash from operating activities (including from its proportionate interest in wind and solar facilities), less maintenance capital expenditures, less changes in working capital, adjusted for certain one-time items. (See Summary Financial Information below)

"With the consistent performance of our existing businesses, we made a decision to spend approximately $5.0 million more on our business development platforms and insourcing of operations of our renewable power business," Hooke noted. "This decision will make it likely that the Company will now generate growth in Free Cash Flow of approximately 9% in 2017 compared with 2016."

MIC has committed capital to various development platforms, including those involved in fuel storage, logistics and wind and solar power that are not expected to deliver cash flow generating projects over the near term. MIC also incurred costs in 2017 to insource aspects of the operations and oversight of the Company's renewable energy power generation projects that had previously been conducted by various third party providers. Management believes that insourcing will lead to improved performance from these projects. The combined cost of the two initiatives is expected to result in a reduction in Free Cash Flow generation of approximately $5.0 million, or $0.06 per share, for the full year. 

Consistent with past practices, MIC is expected to provide the market with its views on 2018 performance in the context of its full year results release next February. 2018 guidance is likely to reflect the benefit of growth capital deployed in 2017, the impact of a fully functioning shared services capability and the expected uplift associated with the general rate filing by MIC's Hawaii Gas business.

"We're excited about our prospects in 2018, given the pending completion of the buildout of BEC II and the benefits of the gas lateral completed this past year, as well as the full-year contribution from the several acquisitions we have been able to complete," said Hooke. "We also expect to see some initial economic benefits from our investment in development of renewable power projects."

The MIC board of directors authorized a cash dividend of $1.42 per share, or $5.68 annualized, for the third quarter of 2017. The dividend will be payable November 16, 2017 to shareholders of record on November 13, 2017. The payment represents a 10.1% increase over the dividend paid for the third quarter of 2016 and is consistent with MIC's guidance for a 10% increase in its annual dividend in 2017 over 2016.

The ongoing implementation of MIC's shared services initiative is resulting in reductions in general and administrative expenses consistent with the Company's guidance for savings of between $7.0 and $8.0 million in 2017. As anticipated, the savings have been offset by expenses including primarily severance payments and consulting fees. Those expenses totaled $1.4 million in the third quarter and $6.8 million in the year to date periods. The Company does not expect to incur implementation costs in 2018 and has excluded those incurred in 2017 from its presentation of both Adjusted EBITDA excluding non-cash items and Adjusted Free Cash Flow in an effort to provide clarity with respect to the recurring cash flows generated by its businesses.

MIC expects to realize annual general and administrative cost savings of between $12.0 million and $15.0 million in 2018, compared with its 2016 baseline, as a result of the shared services initiative. The expected savings will not be spread evenly, or even proportionately, across MIC's businesses and some businesses may simply benefit from an improvement in service levels. Shared services provides business support functions including Accounting, Human Resources, Tax, Information Technology, Procurement and Risk Management support to each of MIC's operating entities.

MIC incurred approximately $3.0 million of transaction related expenses during the third quarter as a result of a heightened level of activity associated with the evaluation of various investment and acquisition opportunities. Through nine months, transaction related costs have totaled $7.9 million. These costs have been recorded as an expense in the Corporate and Other segment of MIC's financial statements and have been excluded from the Company's presentation of both Adjusted EBITDA excluding non-cash items and Adjusted Free Cash Flow in an effort to provide clarity with respect to the recurring cash flows being generated by its businesses.

Management Changes
On September 11, 2017, James Hooke, MIC's chief executive officer notified the Company's board of directors of his intent to resign. Subsequently, Hooke and the board agreed that the effective date of his resignation would be December 31, 2017.

On October 30, 2017, the MIC board appointed Christopher Frost as chief executive officer of the Company, effective January 1, 2018. Frost, age 48, was appointed president and chief operating officer of the Company effective October 26, 2017.

Quarterly Segment Highlights
Growth in revenue at IMTT reflected a partial quarter contribution from the recently acquired Epic Midstream terminalling business, partially offset by a decline in utilization and a reduced contribution from IMTT subsidiary OMI Environmental Solutions due to reduced spill response activity. Utilization rates at IMTT decreased to 92.7% and 94.3% for the quarter and nine month periods ended September 30, 2017, respectively, versus 96.7% and 96.4% in the prior comparable periods. The sequential decline from 94.0% in the second quarter of 2017 reflected primarily the impact of two large tanks in Louisiana being out of service for portions of the quarter. Both tanks were re-leased by the middle of October.

Comparison of IMTT's results for the quarter to date period ended September 30, 2017 should be considered in light of the approximately $13.0 million of insurance proceeds related to dock damage recorded in Other Income, net and $13.9 million of related maintenance capital expenditures in the third quarter in 2016. Excluding these, IMTT's EBITDA excluding non-cash items would have increased by $4.9 million or 6.6% for the third quarter and by $14.2 million or 6.2% for the nine months ended September 30, 2017. Free Cash Flow generated by IMTT increased by 7.9% in the quarter ended September 30, 2017 and by 10.0% on a year to date basis in part as a result of improvement in operations and a reduction in maintenance capital expenditures.

Strong growth in general aviation flight activity during the third quarter, together with contributions from acquisitions, drove improvement in the financial performance of Atlantic Aviation. Domestic general aviation flight activity increased by approximately 4.0%, based on data reported by the Federal Aviation Administration.

The increase in flight activity, together with contributions from two additional sites added to the Atlantic Aviation network of fixed base operations (FBO) over the past twelve months, drove growth in EBITDA excluding non-cash items and Free Cash Flow of 12.8% and 15.4%, respectively, in the quarter. For the nine months ended September 30, 2017, EBITDA excluding non-cash items and Free Cash Flow generated by Atlantic increased 9.6% and 13.3%, respectively. At the end of the third quarter Atlantic Aviation completed its second FBO acquisition of the year, acquiring the Orion Jet Center at Opa Locka-Miami Executive Airport north of downtown Miami. The south Florida region is one of the fastest growing general aviation markets in the U.S.

MIC's portfolio of wind and solar power facilities benefitted from contributions from acquisitions completed during the past year, although these were partially offset by a reduction in wind and solar resources versus the prior comparable quarter and year to date periods. MIC has entered into agreements with developers of both wind and solar projects and continues to make a portion of its capital available for the construction of additional renewable power facilities. One of those developers sold a number of solar projects in the third quarter and distributed of a portion of the profits to MIC, per the terms of the development agreement, during the period.

MIC has elected to insource the operations oversight of its renewable power businesses. The insourcing was undertaken as a result of a lack of oversight on the part of third party service providers that led to lost power generation revenue and opportunities to optimize the performance of certain assets. With ten renewable facilities in its portfolio and additional facilities in development, MIC expects the insourced capability to facilitate creation of scale in the sector and to provide control benefits.

MIC's Bayonne Energy Center (BEC) is a thermal power facility providing peaking power to parts of New York City from a plant located in Bayonne, NJ. 62.5% of the plant's capacity generates revenue pursuant to a tolling agreement independent of the power needs of the community. 37.5% of the capacity is available on a merchant basis and therefore exposed to demand for peak power. The merchant portion of the facility underperformed expectations in the third quarter as a result of lower than anticipated capacity prices during the summer of 2017 and a reduction in utilization and energy margins relative to prior years driven by milder weather in 2017 versus 2016. The reduced contribution was partially offset by lower natural gas costs as a result of connecting the plant to a second, less expensive source of gas during the summer of 2017 and by additional tariff revenue from the grid operator for new services provided.

In aggregate, the businesses comprising MIC's Contracted Power segment generated $0.66 million, or 2.0%, less EBITDA excluding non-cash items and $0.75 million, or 2.8%, less Free Cash Flow in the third quarter of 2017 compared with the third quarter in 2016. For the nine months ended September 30, 2017, the segment produced an increase in EBITDA excluding non-cash items of $1.5 million and no change in Free Cash Flow.

The Company's MIC Hawaii segment reported revenue growth driven by an increase in the volume of gas sold by Hawaii Gas and contributions from acquisitions compared with the third quarter of 2016. A portion of the increase was offset by higher state taxes in the quarter and lower prices achieved on gas sales in certain markets.

For the quarter ended September 30, 2017, EBITDA excluding non-cash items and Free Cash Flow generated by MIC Hawaii decreased by $0.27 million, or 2.0%, and $0.56 million or 6.4%, respectively, versus the prior comparable period. For the nine months ended September 30, 2017, EBITDA excluding non-cash items was flat and Free Cash Flow increased by $1.9 million or 6.4%.

Adjusted EBITDA excluding non-cash items, on a proportionately combined basis, would have increased by 8.2% to $185.0 million in the quarter ended September 30, 2017 excluding the impact of the insurance recovery by IMTT in 2016 discussed above. Through the nine months ended September 30, 2017, the increase would have been 7.0% to $541.0 million.

Conference Call and Webcast

When:  MIC has scheduled a conference call for 8:00 a.m. Eastern Time on Thursday, November 2, 2017 during which management will review and comment on the third quarter 2017 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 November 2, 2017 through midnight on November 8, 2017, at +1(404) 537-3406 or +1(855) 859-2056, Passcode: 98492892. 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 primarily 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 the Company'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 expenses 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 CP 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 proportionate interest in its wind and solar facilities. 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 and not in lieu of its financial results reported under GAAP.

The Company's businesses are characteristically 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 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 expenses. 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. 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 and not in lieu of its financial results reported under GAAP.

See also "Reconciliation of Consolidated Net Income (Loss) 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.

In some cases, specific capital expenditures contain characteristics of both maintenance and growth capital expenditures. MIC does not bifurcate specific capital expenditures into maintenance and growth 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.