Hello. Thank you for standing by, and welcome to FTAI Infrastructure Q1 2023 earnings conference call. At this time, all participants are on a listen only mode. After the speaker's presentation, there will be a Q&A session. To ask the question during this time, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I will now like to hand the conference over to your speaker, Alan Andreini. You may begin, sir.
Thank you, Towanda. I would like to welcome you all to the FTAI Infrastructure first 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. Please note that this call is open to the public in listen-only mode and is being webcast. We will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA. 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.
Thanks, Alan, and good morning, everyone. This morning, we will be discussing our first 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 first quarter supplemental materials that were recently posted to our website. Before we get to the financials, I'm pleased to report that we will be paying our third dividend as a standalone company with our board authorizing a $0.03 per share quarterly dividend to be paid on May 26th to the holders of record on May 15th. Now on to the financials. We posted a strong first quarter financially and continued to generate momentum across our portfolio. Adjusted EBITDA for the quarter came in at $30.1 million prior to corporate expenses, up sequentially from $9.5 million in the fourth quarter of 2022.
In comparing our two most recent quarters, it's important to remind everyone that our fourth quarter results included the impact of our Long Ridge power plant outage. Our adjusted EBITDA for the most recent Q1 was up meaningfully even after adjusting for the outage at Long Ridge. More importantly, during the quarter, each of our four segments made good progress in advancing their respective businesses, and we are well positioned for substantial growth in 2023 and the years ahead. All in, we continue to target achieving this year a run rate of $200 million of annual adjusted EBITDA from our segments with no additional capital required to meet that target.
In terms of the highlights at each segment, Transtar continues to be a substantial producer of cash flow for us, with adjusted EBITDA coming in at $17.2 million for the quarter, up 27% from the fourth quarter of last year. At Jefferson, we began to handle volumes of refined products for export under our new contract with Exxon. Exxon completed the BLADE expansion in March. We expect to see these volumes continue to increase in the quarters ahead. At Repauno, while the financial results reflected an adjusted EBITDA loss, the loss was largely the result of the forced sale of natural gas liquids in inventory that were required to be removed prior to commencing our new multi-year tolling contract on April first. With the new tolling contract in place, we expect Repauno to generate an operating profit going forward.
Finally, at Long Ridge, operations returned to normal after the fourth quarter outage, and we reported $11.3 million of adjusted EBITDA. All in, a very good quarter, setting the stage for continued growth ahead. Briefly on the balance sheet. We ended the quarter with $40 million of cash. In the aggregate, we had $1.3 billion of debt shown on the balance sheet at March 31st, approximately $515 million of which is issued at or guaranteed by our holding company, and approximately $750 million of which is issued on a non-recourse basis at the individual asset level. Our non-recourse debt is issued primarily at Jefferson at an extremely low interest cost, long duration with weighted average maturity of 14 years, ample flexibility to pay dividends with excess cash flow and not callable in the event of a sale.
In short, we view the non-recourse debt at Jefferson as a valuable asset. I'll spend a few minutes providing more details on each of our segments and then plan to turn it over for questions. Starting with Transtar on slide 7 of the supplement. Transtar posted revenue of $41 million and adjusted EBITDA of $17.2 million in Q1, up from revenue of $35.8 million and adjusted EBITDA of $13.5 million in Q4 of last year. Both carload volumes and average rate per carload were higher for the quarter as U.S. Steel production at the Gary, Indiana and Mon Valley, Pennsylvania facilities returned to more normal levels, with blast furnaces returning from temporary idling. 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.
We expect these programs to represent approximately $30 million of incremental EBITDA opportunities annually with little to no additional investment. On to Jefferson. Jefferson generated $19.1 million of revenue and $6.5 million of adjusted EBITDA in Q1, compared to $15.5 million of revenue and $4.5 million of EBITDA in Q4. Volumes for the quarter increased materially, both for refined products and crude oil, with total volumes averaging 163,000 barrels per day versus 102,000 barrels per day in Q4. The bulk of volume increases were attributable to the new Exxon export contract with the completion of Exxon's $2 billion Beaumont refinery expansion in March, increasing Exxon's refinery capacity by approximately 250,000 barrels per day to a total of 620,000 barrels per day.
ExxonMobil Beaumont is now the largest refinery in North America. While business grows at Jefferson's main terminal, we also made solid progress on a recently acquired nearby property in Beaumont. We're seeing multiple opportunities for the storage, transloading, and export of renewable fuels and hydrogen-based products, and with Jefferson nearing full build-out, this site is an ideal extension for our business. We expect this new addition, which we refer to as Jefferson South, to contribute incremental EBITDA as early as this year and to ultimately represent up to $50 million of opportunity for incremental EBITDA. Shifting to Repauno, we commenced on April 1st our multi-year contract to transload natural gas liquids using our phase I system. The contract, which is with one of the world's leading trading companies, has minimum volume commitments and does not expose Repauno to commodity prices.
In advance of commencing operations under the contract, Repauno sold in March its then existing inventory, recording a loss on the sale driven by depressed butane prices. Not ideal timing, it was necessary in order to commence the tolling contract and not something we expect to reoccur. With phase I having commenced, Repauno is now focused on securing business for our larger phase II transloading system. As detailed on slide 9 of the supplement, our phase II system is expected to materially increase our storage and throughput capacity and when it comes online in a couple of years. In the aggregate, we expect phase II to cost approximately $200 million to build and to generate in excess of $40 million of annual EBITDA once complete. We have demand from multiple international off-takers, and our goal is to enter into long-term agreements with multiple parties in the coming months.
Finally, moving on to Long Ridge. Long Ridge generated $11.3 million in EBITDA in Q1, up from an adjusted EBITDA loss of $6.6 million in Q4, which included the power plant outage that persisted for the bulk of the fourth quarter. Power generating capacity for Q1 was at 93%, and gas production averaged 81,000 MMBtu per day, in excess of the 72,000 MMBtu required for plant operations. As we look to the remainder of 2023, we expect both plant operations and gas production to be stable while we progress a number of initiatives to increase revenue and profits. In the near term, we're expecting final approvals in the coming months for the upgrade of the power plant to 505 MW, an increase of 20 MW from our current generation capacity.
That will contribute incremental EBITDA in the range of $5 million-$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 start to 2023 and excited about the things to come in the year ahead. With that, let me turn the call back over to Alan.
Thank you. Thank you, Ken. Towanda, you may now open the call to Q&A.
Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star one one on your telephone and then wait for your name to be announced. To withdraw your question, that's star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Giuliano Bologna with Compass Point. Giuliano's open.
Good morning, great to see the, you know, the recovery in Transtar and Long Ridge this quarter. Starting off on the Transtar side, I'm curious if U.S. Steel is back up to full capacity now. You know, related to the U.S. Steel topic, I'm curious if there's any other business opportunities that Transtar could tap into with U.S. Steel.
Yeah. Hey, Giuliano, thanks. They are. The blast furnaces, all blast furnaces are back up and running. So operations there seem to be back to, you know, stable and normal, you know, conditions. That doesn't mean for Transtar there isn't further opportunity for growth. You know, of course, U.S. Steel brings in raw materials and then ships out finished steel products, and they do that by three primary modes: rail, first and foremost, marine, you know, freight by barge, and then lastly by truck. I think the biggest opportunity for Transtar is the conversion of trucked traffic today to rail. Rail is materially more efficient. We've been working with U.S. Steel on a handful of new opportunities where we think we can save them money.
I definitely expect that we'll realize some of those opportunities, you know, during the path of this year. Yes, certainly opportunity probably, you know, 10%-15%, you know, incremental revenue opportunity from our existing base through converting currently trucked freight to rail.
That's great. You know, staying on the Transtar topic, where do you stand on the initial third-party business opportunities that you're working on, that you're mentioning should drive, you know, roughly $30 million of incremental EBITDA?
Yeah.
What's the timing of some of those opportunities starting to roll in?
Yep. I'd say it's during the course of this year, 2023. They're really in two primary categories. One is just third-party freight movements. We continue to open up transload facilities to stimulate some of that. You know, our most successful one to date is up in the Detroit area on the Delray Connecting Railroad. That's doing very well. That itself, just one transload facility will contribute at least, you know, $1 million of revenue this year, probably up to $2 million. You know, we plan to open ideally dozens of transload facilities in the year ahead, so you get a sense for the impact of what that could have. Car repair is the other big component. We've got a big facility in Pittsburgh that is under construction, and that will be opening midyear.
We have an existing facility that needs some refurbishment, but down in the Texas area in Longview, and that'll be opening as well later this year. You know, precise timing is probably roughly in the third quarter when those facilities are able to be opened up, and start generating revenue. You get a sense, you know, by the time we swing into the fourth quarter, you know, we should be in a pretty good place for both third-party business and the incremental repair revenue.
That's great. I, and I think, you know, granted you're still kind of rounding back up, even though Transtar are in, the first quarter, but, you know, kind of before the outage, we're running, what, $8.5 million-$19 million a quarter range with, just the base U.S. Steel business and the $30 million M&S, it would add, what, $7.5 million a quarter. I'm just curious about thinking about the, you know, your ability to get to, you know, $25 million a quarter or a $100 million run rate, you know, by the end of the year.
Yeah. Feel good about it. Really, if we did nothing, no more third-party customers and, you know, no car repair, you know, the year should be about $80 million of EBITDA for Transtar, $75 million-$80 million. You know, we're running today, just taking the first quarter. If you just annualize the first quarter, it's about $70 million. I just think with normal growth, rate growth, you know, in the year ahead and some small additional volume growth, the full quarter effect of all the blast furnaces being operating and what have you, that should be $75 million and probably closer to $80 million of EBITDA.
You know, bringing in the car repair and third-party business incrementally to that, we should be at an annual level of $100 million-$110 million or, you know, your $25 million+ per quarter by the end of the year.
That's great. I'm curious, where is the application on the... Switching topics a little bit to Long Ridge, where does the application stand for the incremental 20 MW operating? Bringing it up to 505 MW.
It is scheduled to be approved in either July or August of this year. You know, we're obviously rooting for July because there is no incremental cost to that upgrade, and the, you know, the additional power revenue largely drops to the bottom line. Obviously, there's a little bit more gas that's needed to be produced or purchased, you know, in order to generate the additional megawatts. You know, we would be at the high end today of the $5 million-$10 million of incremental EBITDA. You know, call it $10 million of EBITDA starting in July or August. We have half of that, of course, on our own P&L, so it would add $5 to the, to the Long Ridge numbers starting in the third quarter.
That's right. I'm curious where things stand relates to the prospects of behind-the-meter customers and if there are any, you know, active discussions ongoing at the moment.
We're always in active discussions. I would say, those are longer-term projects. We obviously have Newlight Technologies that will be commencing construction on their facility late this year. We have a handful of other very large prospects. These are prospects each of which, I mean, frankly, they'd require 500 MW of power. They're significant. They are primarily focused on the data center space. You know, there is Data center developers today are, with the advent of ChatGPT, AI and what have you, and the demands for power, there is a significant rush to new data center capacity. Some of the bigger players in the space are, you know, accelerating their development plans. We're in a dialogue with all of the major players. There's one in particular who is closer.
Again, the numbers are pretty significant. Those tend to be longer term developments. You know, our goal, of course, is to sign, you know, up an additional opportunity in addition to Newlight Technologies at some point in the next 3 to 6 months. Typically that would be a 1 to 2 year, you know, build before we start actually seeing the revenue from that project. Obviously it's incredibly valuable once you have it in place.
That's great. You know, when I look at Long Ridge, you're at $11.3 million of EBITDA this quarter, and that incremental, call it $5 million, assuming 50% interest would get you up to, you know, call it $12.5 million per quarter. I'm curious what the drivers are to get to, you know, $15 million a quarter or $60 million a year run rate for Long Ridge.
It is one of two things. It's either, as we just discussed, the additional, you know, behind-the-meter customers that may take some time, but the path to that annual $60 million, you know, would definitely be there. It's capacity auctions. Capacity auctions have been down materially over the past couple of years, way off market. If they return to normal, you know, that alone basically gets us close to that $60 million. The capacity auction market has been incredibly weak from our perspective, and set with meeting capacity revenues are well below where they have traditionally been. That swings back in our favor, then I think we're right there, you know, next year with the $60 million annual run rate.
That sounds good. Then, switching over to Jefferson, is the BLADE expansion with Exxon fully ramped up at this point? If it's not, I'm curious, you know, it'd be great to know what the exact timeline is to reach full capacity for that.
Yep. I would say every month is growing. You know, we averaged 163,000 barrels per day in the first quarter. This quarter to date, second quarter to date, for which we've really had largely, you know, one month behind us, we're in excess of 200,000 barrels. It just gives you a sense for the momentum. You know, we have capacity to handle in excess of 350,000 barrels per day, so we still have plenty of capacity. Yes, we're definitely seeing increased volumes as we're swinging into the second quarter here, and the trend line is, you know, is very encouraging. You know, I would say there's still excess capacity.
You know, Exxon is as I said in my comments, it's the biggest refinery in North America, frankly, the Western Hemisphere. There's still plenty of additional opportunity. We have the capacity to handle it. You know, I like the momentum and the, you know, the current run rate and, you know, I like what we saw in April.
Sounds good. I'd be curious if you can just expand on Jefferson South, and if you can disclose how much you paid for the land and if there's any CapEx related to Jefferson South that's expected in the near term.
Yeah. The... Yeah, I'll describe it a little bit. It's a, it's a significant site. It's about 600 acres in total. We paid less than $25 million for the site. It has two existing tenants that are major players, and has about 200 acres available for development. It's on the other side of the river from Jefferson's main terminal. The two tenants, there's some minor freight movements for the two tenants, but we do provide services to the tenants, so there are really no net operating expenses for the site, so it doesn't impact. Owning that site doesn't really generate incremental revenue, or it certainly doesn't generate any incremental EBITDA for us, but represents a significant development opportunity. There is no CapEx that is required just to maintain the site.
Like we've done at Repauno, we will not invest capital into that site until we have a contract that justifies doing so. I do think in the coming months, we will be executing our first contract with a third party for some transloading business. That'll be the first of a handful of opportunities. You know, we acquired this site with a set of opportunities that we had underwritten and are now, you know, pursuing and seeking to secure. Again, I think we'll have one here in the relatively near term. It'll represent somewhere between, you know, $5 million-$10 million of incremental EBITDA and probably a, you know, $30 million-$40 million capital investment. Again, we won't be investing any capital until we've secured business.
Yeah. That makes sense. Then, I guess it would be great if you could provide a bridge from, you know, where you are now from an EBITDA perspective to, at Jefferson, to reaching, you know, the $80 million or so per year run rate.
Yeah. The simple way to think of it is incremental volumes, assuming the same rate per barrel, you know, obviously generate incremental revenue, and our expenses are largely fixed. Those incremental revenue dollars drop straight to the bottom line. Just to put it though, in context, as I said, we moved 163,000 barrels per day in the first quarter on average, at an average rate of $1.30 per barrel. That $1.30 is a bit of a mix up. There's some storage revenue, there's throughput revenue in there, I'm just trying to keep it simple. 162,000 at $1.30 per barrel, generating about $19 million of revenue and $6.5 million of EBITDA.
We have capacity to handle, as I said, 350,000, up to almost 400,000 barrels per day. If you just double capacity, however, take the 165,000 that we did in the first quarter to about 300,000, and hold the same rate per barrel of $1.30, you've basically gotten right there to the $80 million run rate. You generate about $20 million of EBITDA in the quarter. The significant portion of the expenses are fixed, they don't grow with that volume growth, and you'd be generating about $19 million-$20 million in the quarter. As I said, the 163,000, you know, for the first quarter is less than where we're currently running. We see significant positive momentum.
The path to getting to that, you know, 300,000 barrels per day plus is a process. It is a path. I like the momentum. You know, we're running north of 200,000 barrels per day, so we're on our way. You know, I think it takes the bulk of the second quarter ultimately to get there. At some point in the third quarter, you know, we swing into that, into that kind of level.
That's very helpful. Switching over to Repauno. I'd be curious, you know, where EBITDA should go, you know, now that the contract, you know, the new butane contract went live on April 1st. I realize there's probably a little bit of transition during the 1st quarter of the contract going live. I'm curious, you know, where the quarterly or annual run rate should be.
Yep. Our target for phase I is $10 million, the $10 million of annual EBITDA. The contract in place is for about two-thirds of our total phase I capacity. If you just assume, you know, that single contract, it's probably, you know, closer to $5 million of annual EBITDA. The incremental capacity that's available for phase I, which is something we expect to secure here in the second quarter, would get you to about the $10 million annual run rate. Obviously, the first quarter was, you know, a little bit frustrating. You know, we had to spend a little bit of money to get ready for the new contract. We had to sell some inventory. Market timing was unfortunate there. That is behind us.
With the existing contract in place, it's, you know, we'll certainly be in the black and, you know, if we can secure additional volumes to use all the capacity of phase I, you know, we should be hitting, I would say, in the second half of this year, two and a half million per quarter or $10 million annual run rate.
That's great. I'd be curious where you are on the prospects for securing the 2 sides for phase II. If there's.
Yeah.
If there's any CapEx at Repauno other than the phase II build out?
Yeah. No additional CapEx at Repauno. We're done, you know, outside of what would be phase II. Everything's working extremely well, and there's no need for additional capital other than the phase II expansion. We have a handful of folks, all very large international players, that we're in a dialogue with about volumes for phase II. I'm glad you asked the question the way you did because it's not just offtake that we're seeking. It is supply on the one side and then the offtake on the other side. Frankly, it's less us seeking that. It's more the offtaker. The offtaker is securing volumes of butane and propane from them ourselves in Utica. Then, you know, they're, of course, securing their own offtake, you know, in the European and African markets.
I would say we're very close with one, you know, brand name, very well-known player. That's been, you know, several months of dialogue and back and forth. We have two others that are close behind. You know, look, these are massive institutions. They typically don't move terribly quickly. They're very thoughtful, of course, because they're committing to five to 10 years of a supply chain. I'm confident, you know, we'll get at least one of these guys to sign up in the coming months. I think all we need is one. Once we have one, we'll commit to the project and go ahead and finance it and start construction. It's ready to go. It is permitted, engineered, ready to go.
We just wanna make sure we have the contract in hand before we commit the capital.
That's great. You know, kind of switching away, you know, away from the assets more so, you know, the specific assets. I'm curious, when you think the company will be in a position to start paying down debt and reducing leverage?
You know, we're targeting that for later this year. At this point, we have better uses for our capital. Look, our cost to debt capital is relatively high. At the same time, you know, right now, the way our securities work, the cost to prepay, you know, that debt is also, you know, relatively high. We have pretty attractive uses for our free cash flow. I don't necessarily see us using cash to repay debt, you know, at some point this year. That's something that would start making sense as we swing into the fourth quarter and swing into 2024. You know, the ultimate plan would be by the time we get to mid-2024, we're in a position to refinance the entire balance sheet.
That, I think, would be a highly accretive thing to do at lower rates, you know, with a lot of excess cash. We're really a very different company, a very different, you know, credit profile and what have you when we're generating $200 million of, you know, EBITDA annually. So we'll have the ability to refinance our debt at lower prices in the summer of next year. Maybe we'll take advantage of things if we have the opportunity to prior to that. I'd love to. I do think any refinancing we do, you know, should be a highly accretive thing when we, when we ultimately do it.
That's very helpful. You know, and, kind of looking across the board, are you looking at any other M&A or JV opportunities, you know, at the four main assets at this point?
Yeah. The answer is yes. We're always looking at stuff. There are a handful of opportunities in the ports and terminals sector that we've been looking at. Those tend to be a little bit more spotty. We're primarily focused on opportunities in energy terminals, leveraging some of the relationships and the platform that we have today with Jefferson and Repauno. I'd say the most recent pickup in activity is definitely on the rail space. It was very quiet last year. We're starting to see a pickup in opportunities. I'm thrilled we own Transtar, of course, because it's a phenomenal platform for acquisitions. Yes, we're definitely seeing more opportunities in the rail space. That's a nice thing.
Nice tuck-in opportunities or some that are slightly more chunky but highly complementary with Transtar. We're always looking at stuff and, yeah, I'm pleased that we're seeing a little bit more liquidity or, you know, fluidity in the M&A market, and expect that to last for, you know, the bulk of 2023.
That's great. Yeah, thank you for, you know, answering, yeah, a number of questions and letting me monopolize the Q&A session there. I appreciate all the answers, and I will jump back in the queue. Thank you.
No problem. Thanks very much.
Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Alan.
Thank you, Towanda, and thank you all for participating in today's conference call. We look forward to updating you after Q2.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.