Macquarie Infrastructure Holdings, LLC
Q1 2021 Earnings Call Transcript

Published: 4 May 2021

[Operator:]

Good morning, and welcome to the Macquarie Infrastructure Corporation's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please note this conference is being recorded. I will now turn the conference over to Jay Davis, Head of Investor Relations. Please go ahead.

[Jay Davis:]

Thank you, and welcome to Macquarie Infrastructure Corporation's earnings conference call this covering the first quarter of 2021. Our call today is being webcast and is open to the media. In addition to discussing our financial performance on this call, we have published a press release summarizing the results and filed a financial report on Form 10-Q with the Securities and Exchange Commission. These materials were released this morning and copies may be downloaded from our website at www.macquarie.com/mic.

[Christopher Frost:]

Thank you Jay, and thanks to those of you joining our call this morning. We intend to provide you with an update on our results for the first quarter, including our revised guidance the sales processes involving our remaining businesses and our two upcoming shareholder meetings.

[Nick O'Neil:]

Thank you, Chris, and good morning, everyone. I'll begin by commenting on some of the capital management initiatives we completed during the quarter. In February, we launched a tender offer for any and all of our convertible notes, of which there were approximately $403 million outstanding. The offer closed on March 16 with approximately $359 million of notes being tendered at par plus accrued interest. Since then, we have purchased an additional $6 million of notes in the open market also at par. In total, we have repurchased 91% of the notes outstanding and we expect to continue to acquire notes in the open market. In any case, we will continue to reserve cash equal to the balance of the notes outstanding. In April, we fully repaid the $100 million of senior secured notes outstanding at MIC Hawaii and amended the remaining debt to remove the change of control risk that could have otherwise affected the reorganization of MIC and the subsequent sale of MIH and MIC Hawaii. The benefits of the repayment and amendment that they one facilitate the timely reorganization of MIC and the sale of Atlantic Aviation prior to the sale of MIC Hawaii and two leave MIC Hawaii with a prudent level of leverage on a stand-alone basis as the business recovers. The remaining debt outstanding at our MIC Hawaii businesses totals $94 million and consists of two term loans with a weighted average remaining maturity of approximately 2.3 years. We had approximately $290 million of unrestricted cash available in our consolidated balance sheet at the end of April or approximately $250 million after reserving for the convertible notes that remain outstanding.

[Christopher Frost:]

Thank you, Nick. Our highest priority remains unlocking value for shareholders through the sales of both Atlantic Aviation and MIC Hawaii. The processes related to the sales are progressing and we are confident in our ability to sell Atlantic Aviation in 2021. If approved by shareholders at our special meeting on Thursday of this week, the flexibility to reorganize MIC will allow us to complete the sale of Atlantic Aviation prior to a sale of MIC Hawaii without altering the tax efficiency of the sales. We believe the additional flexibility provides a real benefit to shareholders and your Board of Directors unanimously recommends a vote in favor of the proposal. If you have not yet voted please do so. With the anticipated sales of our operating businesses, we are moving to unwind our shared services function. Our operating businesses are performing well, increases in general aviation flight activity and in the number of visitors to Hawaii led to better-than-anticipated financial performance in the first quarter. On the strength of that performance, we have raised our consolidated earnings guidance for 2021 to a range of between $265 million and $290 million. Thank you again for your participation in our call this morning. I will now ask our operator to open the phone lines for your questions.

[Operator:]

Thank you, sir. At this time, we will be conducting question-and-answer session. Our first question today is from Tristan Richardson of Truist Securities. Please proceed with your question.

[Tristan Richardson:]

Good morning, guys.

[Christopher Frost:]

Good morning, Tristan.

[Tristan Richardson:]

I really appreciate all the updates. Thanks for all the comments, particularly on the big step forward on strategic alternatives. Just a quick one on activity levels, you noted, the guidance assumes sort of a return to activity levels reached in 2019 by year-end 2021. I guess, since you noted strong activity in March and April versus 2019 should we think of that by year-end 2021 assumption, as a sort of a comfortable outlook that would get you towards the lower end, or since you're already sort of seeing activity levels in March and April look towards that 2019 should we think of – if the rest of the year goes as well as April and March has that there is potential upside to that comment?

[Nick O'Neil:]

Yeah. Thanks for the question, Tristan. I think in terms of guidance, what we're assuming is the recovery to 2019 flight activity levels by the end of the year. And importantly, also the patterns of demand that we've seen historically, and what I mean by that is really geographic mix and purpose of travel. And so as part of that, we are assuming that, there's a transition from what we're seeing at the moment which is sort of leisure-oriented travel towards those sort of historic patterns of demand, which obviously include a recovery in business oriented or business-focused travel, return of events and the return of international travel. So as part of that, we are sort of expecting a transition. I think the other point to note is that and there's obviously part of the step-up in guidance is that that leisure-oriented demand as we've pointed out has been -- has exceeded our expectations thus far for the year. There's obviously a lot of discussion at the moment regarding pent-up demand for a lot of different things coming out of the pandemic. And so we may see a continuation of that leisure-oriented demand through the summer, which could be -- could give rise to upside relative to the call it the midpoint of guidance.

[Tristan Richardson:]

That's helpful. And just a follow-up. I mean clearly without discussing value directly you just -- you noted that you're pleased with the level of bids you're seeing. Can you talk about expectations as we think about your business should we see -- are there any major differences between your business and some of your peers out there where there is a clear and direct marker such that expectations versus that marker would be meaningfully different?

[Christopher Frost:]

Tristan, I think you are asking us to speculate a little on the value of Atlantic, which I won't do. But what I have said is that we are pleased with the level of interest and I think that people would recognize that Atlantic is really a market-leading FBO network and is very well placed. We obviously have a great geographical and customer mix. And I think that has been evident through the rapid and sustained recovery that we've seen. It's got great exposure to the top US general aviation markets. I would also argue that it's exceptionally well placed to play a leadership role in the consolidation of the FBO sector, particularly after a change of control in the number one and the number two players. And I think it also has a leadership team that has a significant track record in terms of acquisitions and M&A. So as I sort of said, I'm happy to restate what I said on my third quarter earnings call, but I believe out of the three operating businesses, Atlantic represents the most valuable. We are pleased with the level of interest that we have in Atlantic. We are currently under process. But it would be inappropriate to speculate as to what a sale value would be at this stage.

[Tristan Richardson:]

Appreciate it, Chris. And then just one last one for me. You talk about the tentative plan would be proceeds would be distributed via a special distribution to unitholders. If the plan is to have a sale transacted upon in 2021, is it reasonable to expect that we could see a special distribution from MIC or MIH as early as 2021?

[Christopher Frost:]

Well, what I would sort of say to that is and consistent with previous remarks. Certainly, it's my objective and expectation that we will be able to close a transaction in 2021. I will certainly be driving towards that outcome. And without speaking for the Board of MIH, I see no reason why we wouldn't look to distribute the net proceeds on a similar basis to what we did with IMTT.

[Tristan Richardson:]

That's great. Really helpful. Appreciate it. Thank you guys so much.

[Christopher Frost:]

Great. Thanks, Tristan.

[Operator:]

The next question is from T.J. Schultz of RBC. Please proceed with your question.

[Christopher Frost:]

Hey. Good morning, T.J.

[Nick O'Neil:]

Good morning, T.J.

[T.J. Schultz:]

Hey. Good morning. I'm just going to stick on Atlantic. So as you work through this sales process is 2019 cash flow at least the starting point for the discussions, or how do you kind of navigate this process when there's still some changes in travel patterns and what may be smaller planes or smaller margins on the higher leisure travel kind of driving activity now? And I guess the unknown is still the return of these larger events business travel, international travel that would kind of lead to better margins?

[Christopher Frost:]

I think what I would sort of say is that the interested parties or potential buyers are going to take a long-term view with respect to the prospects and performance of Atlantic Aviation. And it's unlikely that they would be participating in a process where they did not have high conviction regarding the recovery in general aviation. And I think that the performance of Atlantic Aviation since the second half of last year, I think is ample evidence of the defensiveness and the strength of general aviation of an asset class. So I don't want to sort of speculate as to what a potential purchases business plan looks like. But I think in terms of the thesis that general aviation is going to recover. I think it is playing out when we look at the operational and financial performance of the business.

[T.J. Schultz:]

Okay. Understood. And then just it's unclear, the sale of Atlantic, is that tax free, or is there some tax leakage that we need to expect?

[Nick O'Neil:]

No.

[Christopher Frost:]

Sorry, Nick, you take it.

[Nick O'Neil:]

Yeah. So there is no corporate capital gains tax on the sale of Atlantic assuming obviously that we have implemented the reorganization. Unitholders in MIH may be subject to capital gains tax. They'll obviously depend on their own circumstances. But key point or key objective of the reorganization is to mitigate the corporate capital gains tax as part of that process.

[T.J. Schultz:]

Okay. Perfect. Understood. I'll just leave it there. Thank you.

[Christopher Frost:]

Great. Thanks, T.J.

[Operator:]

The next question is from David McColl of Fort Washington Investment Advisors. Please proceed with your question.

[David McColl:]

Hey, good morning guys.

[Christopher Frost:]

Hi, David.

[Nick O'Neil:]

Good morning.

[David McColl:]

Glad to hear the positive update on momentum for Atlantic. Regarding Hawaii, I know there were a lot of difficulties last year associated with getting boots on the ground to do due diligence. So I'm curious, if that's hampered your view of potentially closing that transaction in 2021, if that's a material concern at this point? And has access to Hawaii improved for due diligence, assuming potential buyers aren't going down to check out the beach?

[Christopher Frost:]

David, thanks for the question. As I said in my prepared remarks, our expectation is that we would complete a sale of MIC Hawaii through a takeout of MIH in 2022. That timing reflects the fact that a sale of Hawaii Gas will require the PUC approval for the change of control. And consistent with my previous remarks, we anticipate that that process could take between six to 12 months or even longer. And I certainly don't want to speak on behalf of the PUC. And so that is what is conditioning, what I said in my previous remarks about 2022. What I also said is that we are confirming that we are currently in process with respect to the sale of MIC Hawaii through the sales structure of the takeout of MIH. And we need to see how that process plays out. But certainly, the state opening up post October 15 last year has been constructive for that.

[David McColl:]

Okay. Perfect. So we could see the sale announcement in 2021, but transaction will close subject to regulators?

[Christopher Frost:]

Yeah. Look I won't sort of speculate on the timing. But certainly, our expectation is that we can close the deal in 2022.

[David McColl:]

Perfect. All right. Thank you all.

[Christopher Frost:]

Thank you.

[Operator:]

We have reached the end of the question-and-answer session. And I will now turn the call over to Christopher Frost for closing remarks.

[Christopher Frost:]

Thank you for participating in our conference call today. I hope you and your families remain safe and well. We look forward to engaging with you over the coming months and updating you on our progress at our next quarterly call or prior to that as circumstances warrant. With that, I wish you good morning. Thank you.

[Operator:]

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.