Macquarie Infrastructure Holdings, LLC
Q3 2018 Earnings Call Transcript

Published: 1 Nov 2018

[Operator:]

Good day and welcome to the Macquarie Infrastructure Corporation's Third Quarter 2018 Earnings Conference Call. Today's call is being recorded. At this time, I would now like to turn the conference over to Mr. Jay Davis, Managing Director, Investor Relations. Please go ahead Sir.

[Jay Davis:]

Thank you, and welcome to Macquarie Infrastructure Corporation's earnings conference call, this covering the third quarter of 2018. Our call today is being webcast and is open to the media. In addition to discussing our quarterly 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 last evening and copies may be downloaded from our website at www.macquarie.com/mic. Before turning the proceedings over to Macquarie Infrastructure Corporation's Chief Executive Officer, Christopher Frost, let me remind you that this presentation is proprietary and all rights are reserved. Any recording, rebroadcast or other use of this presentation in whole or in part without the prior written consent of Macquarie Infrastructure Corporation is prohibited. This presentation is based on information generally available to the public and does not contain any material nonpublic information. The presentation has been prepared solely for information purposes and is not a solicitation of an offer to buy or sell any security or instrument. This presentation contains forward-looking statements. We may, in some cases, use words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this presentation are subject to a number of risks and uncertainties. A description of known risks that could cause our actual results to differ appears under the caption Risk Factors in our Form 10-K. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware, could also cause our actual results to differ. The forward-looking events discussed in this presentation may not occur. These forward-looking statements are made as of the date of this presentation. We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this presentation, whether as a result of new information, future events or otherwise, except as required by law. In today's call we will at various times make reference to the non-GAAP measures, earnings before interest, taxes, depreciation, and amortization or EBITDA and free cash flow as defined by us. For the avoidance of doubt such references will be to MIC's adjusted proportionate combined results. Adjustments to either measure reflect primarily the exclusion of the impact of the wide gamut of value of our business in our MIC Hawaiian segment. Proportionally combined measures reflect our economic interest in businesses in which we have less than 100% equity interest. A reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in the tables attached to our earnings press release published last evening. In addition to Christopher Frost, participating in today's call is Macquarie Infrastructure Corporation's Chief Financial Officer, Liam Stewart. At this time, it is my pleasure to introduce Macquarie Infrastructure Corporation's Chief Executive Officer, Christopher Frost.

[Christopher Frost:]

Thank you, Jay, and thanks to those of you joining us for our call this morning. I'd like to begin our call this morning with a few comments on our key strategic priorities and the strong momentum we have developed with each of these through the third quarter. Our first priority continues to be reinforcing the infrastructure characteristic of our business. The key initiatives behind this have included the repurposing of capacity to IMTT and repositioning of that business. Regarding repurposing, we now expect to have approximately 1.3 million barrels completed or in process in 2018. Importantly, we also expect to have all 1.3 million barrels re-contracted by the end of this month. Approximately 600,000 of these barrels should be back in service by year end. Regarding repositioning, in our earnings press release we announced that IMTT had entered into contracts relating to three additional projects with a combined value of approximately $80 million. The first project is the construction of new storage capacity on behalf of Methanex at IMTT's Geismar facility in Louisiana. The second is a new dock also at Geismar and the third is an automated truck loading facility in Bayonne, New Jersey. Importantly, IMTT continues to develop additional investment opportunities. These will enhance the infrastructure that connects terminals to customers and build out capacity to handle products in growth markets. The pipeline of opportunities of IMTT now contains more than $650 million worth of projects. We intend to update the market as projects move from concept to contract. Our second strategic priority involves managing our capital even more efficiently. Following the closing the sale of BEC we applied for net proceeds of approximately $650 million plus cash on hand to repay nearly all of the outstanding balances on the various revolving credit facilities across our portfolio. Each of these facilities can be redrawn to fund our growth capital program over the next couple of years. We have also addressed our third strategic priority of strengthening our balance sheet and increasing our financial flexibility. With the proceeds from the sale of BEC our leveraged has been reduced to approximately 4 times net debt to EBITDA at the low end of our target of between 4 and 4.5 times and substantially below our approximately 5 times leverage at the end of 2017. In addition, we intend to refinance existing debt facilities of IMTT and Atlantic Aviation with a view to increasing our liquidity and extending the overall tenure of our debt facilities. In short, we have made solid progress on our strategic priorities. Turning now to our results for the third quarter, for the quarter MIC generated EBITDA of approximately $176 million and free cash flow of over $127 million, both consistent with our expectations. At a high level, IMTT continued to produce results consistent with our expectations including the impact of contract non-renewals as discussed previously. Utilization averaged 82.1% for the quarter consistent with our expectations for decline across the year finishing around 80%. IMTT generated $51 million of free cash flow in the third quarter consistent with lower utilization and a forecast increase in maintenance CapEx attributable to re-purposing and higher interest expense, both substantially offset by lower taxes. In addition to lower utilization versus last year, a portion of the decline in the contribution from IMTT was attributable to the realization of a smaller amount of deferred revenue in 2018. Trading at IMTT to date and the fourth quarter has been consistent with our guidance for the full year. Atlantic Aviation's performance for the quarter was also consistent with our expectations for the full-year driven by increased hangar rental revenue. Domestic GA flight movements increased by approximately 1% in the first two months of the quarter versus the prior comparable period. Unfortunately, FAA data for September is not yet available. You will recall that the growth in the third quarter last year was more than twice the average of the past decade. It was up by 5% driven by hurricanes on the Gulf Coast and other events. So this year had a difficult comparable period. The long-term trend of growth in Domestic GA flight activity of roughly 2.5% per year is intact. As with IMTT through the first few weeks of the first quarter Atlantic Aviation is on track to deliver a full year result that is consistent with our guidance. Our aggregate results reflect a contribution from Contracted Power that is ahead of our expectations, principally as a result of good operating performance across the portfolio during the period. We have adjusted our outlook for Contracted Power for the full year as a result of its outperformance. Lastly, the performance at our MIC Hawaii segment was below expectations. Our principle business, Hawaii Gas saw higher expenses and lower nonutility margins partially offset by better utility margins resulting from the interim general rate case award in June. Our design-build mechanical contractor, Critchfield Pacific or CPI, continued to underperform relative to our expectations through the third quarter. As a consequence we decided to write down the value of that business. Subsequently we have entered into an agreement to sell CPI to another mechanical contractor. Liam will discuss the financial impact in a moment, but we believe that these decisions though difficult were wholly consistent with our strategic priority to rationalize our portfolio through the sale of smaller non-core businesses. In a similar vein, in our last call we indicated that we'll be looking at various options for the remainder of our Contracted Power segment following the sale of BEC. Early in the fourth quarter, we launched a sale process of most of the operating assets in that segment. Advisors have been appointed and we expect the process to conclude in the second quarter of next year. In sort, we concluded that we will be better served selling the renewable assets into what we see the robust market and redeploying the proceeds in support of our strategic priorities. We do not believe that the alternative of trying to achieve scale through acquisitions is something we can do effectively given our current cost of capital. Based on our overall results, the MIC Board has authorized the payment of a cash dividend of $1.00 per share to the third quarter consistent with the guidance we provided earlier in the year. The dividend will be payable on November 15, to shareholders of record on November 12. The continued stable performance of our businesses and the improvement in our balance sheet's strengthened financial flexibility, gives us considerable confidence in sustainability of our dividend. Before I turn the call over to Liam, I'd like to touch on one other announcement made yesterday, the decision by our external manager to waive a portion of the base management fees paid by MIC. In particular, the manager has waived two provisions of its management services agreement with the company. In short, the base management fee will now be calculated as 1% of our equity market capitalization less cash on the balance sheet. No fees will be assessed on holding company debt. We expect the management to continue to reinvest anything to which it is entitled in new primary shares. The annualized impact of these changes compared with a fees assessed to the third quarter is a reduction of approximately $10 million. The changes are effecting today. At this point, I'll turn the call over to our Chief Financial Officer, Liam Stewart, who will provide additional color on our financial performance in the third quarter and on our capital deployment activities.

[Liam Stewart:]

Thank you, Chris. Our EBITDA for the third quarter, although down approximately $9.5 million year-over-year, reflected stable performance by our two larger businesses including the anticipated decrease in utilization of IMTT and an overall financial result that was consistent with our expectations. A better than expected contribution from Contracted Power offset the performance in the MIC Hawaii segment. That business has produced free cash flow of $127 million in the quarter. For the nine months ended September 30, free cash flow totaled $390 million down approximately 10% compared with the first nine months of 2017. The difference between the year-to-date decline in EBITDA was just 3% and the year-to-date decline in free cash flow reflects anticipated increases in maintenance capital expenditures, principally related to repurposing of capacity at IMTT, higher interest expense, and higher state taxes. I think what's noting is that our businesses continue to generate a substantial amount of cash. Cash provided by operating activities increased in the nine months ended September 30, by 3.7% to more than $413 million versus the same period in 2017. As a part of that strategic priority to reinforce the infrastructure characteristics of our businesses we have been divesting noncore businesses throughout 2018 as Chris noted. I am pleased to report that we're nearing the end of that initiative. In August of 2016 we acquired a mechanical contracting business in Hawaii, CPI with a principal objective of building another channel through which the products and services and secure additional contracts in support of the core business there Hawaii Gas. The financial performance of the mechanical contracting business has been poor. For the first nine months of 2018 we generated negative EBITDA of approximately $6 million. Consequently in the third quarter we wrote-down the value of the business and have subsequently entered into an agreement to sell it for nominal consideration. We expect the sale to close early in the fourth quarter. This is clearly a disappointing outcome, but given the performance and prospects of the business, as well some noncore nature of CPI, we believe selling it was the right thing to do. In aggregate in 2018 we have divested several smaller noncore businesses raising $40 million in cash and incurring approximately $30 million of lockdowns in relation to CPI. The lockdowns have no impact on our liquidity. The write-down and subsequent sale of CPI impacts our third quarter results in a couple of ways. First, these actions reduce our reported EBITDA for the quarter by approximately $17 million. Second, approximately $13 million of other noncash items flow through our financial statements primarily through the depreciation and amortization of line items. Turning to our outlook for 2018, we last updated our guidance for EBITDA and free cash flow to 2018 with our quarterly report for the second quarter in August. Based on the continued stable performance of both IMTT and Atlantic Aviation, I am pleased to reaffirm our guidance with respect to aggregate EBITDA for the full year. As a consequence of the events I have discussed and the view we have into the performance of that business is for the full year. There are a couple of puts and takes in the smaller segments. The underperformance of CPI will prevent the MIC Hawaii segment from delivering its target for EBITDA this year. Excluding the impact of the write-down, we have lowered our MIC Hawaii guidance by $5 million. On the other hand, we have increased the expected contributions of EBITDA from Contracted Power by $5 million. This included a contribution of approximately $40 million from each of BEC and operating renewable. The remaining segment EBITDA will come from our development platforms. As a consequence consistent with our prior outlook, we expect our full-year results to be around the midpoint of our guidance. We expect our free cash flow to be approximately $13 million higher than we had estimated last quarter. We have thought that we would incur certain maintenance capital expenditures in advance of the disposition of BEC; however, these were dealt within the closing of the transaction rather improved free cash flow. Regarding capital deployment we now expect to deploy approximately $200 million of growth capital in 2018 as the timing of certain projects have shifted into 2019. The backlog of 2019 projects to which we have already committed is $160 million. That's a good start on the $350 million or more that we expect to deploy next year. The majority of this year's growth capital deployment has been on projects related to our strategic priority in enhancing the infrastructure characteristics of our businesses. These have involved primarily the repurposing and repositioning of IMTT. We are pleased with the rate at which these have been progressing, particularly the rate at which opportunities to reposition IMTT has been secured. The total of all opportunities under consideration at this time have an aggregate value of more than $750 million including approximately $650 million at IMTT alone. We anticipate entering into contracts related to a number of projects at IMTT before year end as well as adding to that 2019 backlog. Before I turn the call back over to Chris, I would like to touch on the state of our balance sheet and provide some color on our financial risk management activities. Our paydown of various revolving credit facilities has created undrawn debt capacity of more than $1.5 billion. With that, we clearly have ample means of refinancing the $350 million tranche of convertible notes that mature in July of next year. Notwithstanding our considerable liquidity, we are actively progressing a number of initiatives that would further strengthen our balance sheet and extend the tenure of our debt facilities. Our stronger balance sheet allows us to fund a significantly greater proportion of our growth capital with internally generated resources and to maintain leverage of below 4.5 times in 2019. Both of these constitute a significant derisking of that business. Last quarter I discussed our capital allocation policy and the priorities we were balancing. These included maintaining our assets and ensuring the safety of our employees, maintaining a sustainable distribution to shareholders, and investing in the growth of our businesses, positively incremental cash generation and the related tax benefits. In that discussion I also noted that we would evaluate means of returning excess capital to shareholders, potentially in the form of a share buyback. However, to preserve and enhance strategic options available to us in the future it is essential that we invest in and grow the infrastructure characteristics of our businesses that we fund this using internally generated resources to the extent possible that we generate incremental tax yield in doing so. Any share repurchase program would have to accommodate these priorities. I'll hand the microphone back to Chris to wrap things up.

[Christopher Frost:]

Thanks Liam. In the last couple of minutes of our prepared remarks, I'd like to discuss our near to medium term prospects. In October we held our annual strategic retreat with our board including our senior [ph] independent directors, during which we continued our review of a wide range of opportunities to maximize shareholder value. At the event, the board concluded that the most appropriate strategy for MIC over the near term is to remain focused on our key strategic priorities and the [indiscernible] issues we've been discussing this morning. Our continued focus on these priorities does not preclude taking a different path in the future. Indeed as you may appreciate, successfully executing against these priorities creates optionality and flexibility with respect to alternatives that we may consider. By remaining focused we have followed through in a prompt and practical way on the commitments we made earlier this year to improve the prospects of MIC. Overall, we are pleased with the solid positive momentum we have generated. We are reinforcing the infrastructure characteristics of MIC by investing in high-value physical assets and locking in contracted revenue streams where possible. This is clearly illustrated by our repurposing and repositioning efforts at IMTT. We are managing our capital efficiently, in part by redeploying the capital from smaller and non-core businesses to our core businesses. Year-to-date divestments have generated approximately $700 million of net proceeds. These sale proceeds have helped us address our third priority in strengthening our balance sheet and increasing our financial flexibility. We have ample liquidity to deal with matters including the refinancing of our 2019 convertible notes and fund a substantial portion of our growth capital program over the next couple of years. We remain watchful with respect to the fundamental drivers of each of our businesses. IMTT continues to perform in line with our expectations for 2018 from both a financial and operational perspective. That said, we continue to monitor utilization and storage rates as well as the impact of the implementation of IMO 2020. Atlantic Aviation continues to benefit from growth in general aviation flight activity in the U.S. Flight activity is correlated with economic activity and we continue to monitor the factors that have the potential to impact Atlantic's performance and we remain confident in the continued stable performance of Hawaii Gas and the MIC Hawaii segment having made the decision to exit CPI. In summary, our strategy and priorities are clear and we are executing efficiently on initiatives related to these. We will continue to enhance the infrastructure characteristics of our business and exploit opportunities to grow the amount of EBITDA and free cash flow generated by them. We are managing our capital efficiently and moving from rationalization of our portfolio to optimization of business performance. And we remain mindful of the fact that we are long into an economic expansion and as a result continue to look for opportunities to strengthen our balance sheet and increase our financial flexibility. Thank you once again for your participation in our call today. And with that, I'll ask our operator to open the phone lines for your questions. Thank you. [Operator Instructions] And our first question comes from Ian Zaffino from Oppenheimer. Your line is now open.

[Ian Zaffino:]

Hi great, thank you very much. One question would be just on – how are you guys?

[Christopher Frost:]

Well, thank you.

[Ian Zaffino:]

Great, the question would be on the repurposing of the incremental barrels. Can you give us an idea of what the return criteria there is the decision to do that, how you think about spending that incremental money versus per se buying back stock and is there an opportunity to do even more repurposing or is that sort of it? Thanks.

[Christopher Frost:]

Thanks Ian. If you'll recall, we highlighted that we are currently targeting repurposing of around 3 million barrels at the lower Mississippi principally related to a heavier residual oil. And we're pleased to announce that the 1.3 million that we targeted this year will be completed and as we said in the prepared remarks that the final 400,000 barrels will be under contract during November. You may recall that in our second earnings call we included supplemental materials which indicated the return on the cost of repurposing was around the 2 to 3 times spend to EBITDA that we're generating. So we should see the repurposing of tanks as being highly incremental to IMTT but more importantly we're also seeing that it is taking out heavy residual oil storage capacity on the lower Mississippi and importantly converting it to clean storage which we certainly see as a significant growth market for IMTT on the Gulf Coast.

[Ian Zaffino:]

Okay and then also on the incremental capacity that you're putting on gives an idea of what the returns there are and the areas that you could be targeting to chemicals, et cetera, what's going to go in there?

[Christopher Frost:]

Yes, look in terms of the 1.3 million barrels that was done this year, that we have a mix of both clean product going into that as well as chemicals and as I mentioned the return that we're getting from those we see is accretive on the basis of where the capital spend to the additional learnings that we're getting off that is two to three times with respect to repurposing, with respect to the repositioning projects, particularly the construction on land that we already own for chemical or ag products as we indicated in the previous slides it's more like a sort of a 7 to 10 times capital spend to stabilize the EBITDA. So again, we see those as being accretive and recall that a lot of those projects are under a long term contract with the customers.

[Ian Zaffino:]

Okay. Thank you very much.

[Operator:]

Thank you. And our next question comes from Jeremy Tonet from JP Morgan. Your line is now open.

[Christopher Frost:]

Good morning, Jeremy.

[Jeremy Tonet:]

Hi, this is Joe on for Jeremy. So I wanted to ask a little bit more about the IMTT utilization, you've talked a bit about what do you expected through year end and then also in 2020, I just wanted to see how you expect that trending in 2019 if it will be a gradual increase or have some jumps there?

[Liam Stewart:]

Yes, it’s a - that's a good question. As we sort of indicated in the prepared remarks and on previous calls, we anticipate finishing the year at around 80% utilization and that is excluding a slight tick up that we will get from the 600,000 barrels from Phase 1 repurpose coming online. But we anticipate having the, all of the 1.3 million barrels in service by the first quarter and those 1.3 million barrels will add around 2.9% utilization. In addition, you will recall that we are currently working with the owner of a refinery which uses around 1.6 million barrels of capacity at IMTT. We're currently in the process of working with them on selling that refinery and marketing in tandem the storage capacity to IMTT. That process is live, so I will be limited in my remarks, but we're making good progress with respect to the sale of that refinery and to the extent that that refinery is sold and that utilization is taken up, that's around another 3.6% of utilization we expect to come back online next year. And then I think importantly, that we anticipate that there'll be an increase in utilization driven as we approach the implementation of IMO 2020 as our customers settle there, how they are going to respond to those changes, whether it will be increased demand for storing feedstock which will be processed into clean products or indeed simply for the storage and blending of products to make compliant marine fuel.

[Jeremy Tonet:]

Okay. Thank you. That's helpful. That's all I have.

[Operator:]

Thank you. And our next question comes from Tristan Richardson from SunTrust. Your line is now open.

[Tristan Richardson:]

Good morning gents. I appreciate more the clarity on the repurposing and really helpful as we kind of look in at 2019. Just on the repositioning, the contract for new tanks that's dependent on the FID is that incremental to the 200,000 barrels of new capacity you guys talked about last quarter, so should we think about it as, 900 plus of new capacity could come on during 2019?

[Liam Stewart:]

That's correct the 714,000 tank projects that we announced last night is separate from the 200,000 tank project that we announced, sorry 200,000 barrel project that we announced last quarter. The Methanex projects that we referred to is subject to Methanex making a final investment decision with respect to a third facility that they are looking to add to their capacity at Geismar. So it isn't necessarily a case of it coming online. The final investment decision relates to a decision by Methanex as to whether it will go ahead with that plant which would be a significant increase in their production capacity for some ethanol.

[Tristan Richardson:]

That’s helpful. And then Chris, could just kind of give us a general sense of the timeframe to construct that size of a complex or at least the 700,000 barrels?

[Christopher Frost:]

Yes, something like that would generally take around two years to construct.

[Tristan Richardson:]

Helpful. Perfect thanks. And then just last one from me. Liam, I'm just curious on, as you guys look at the renewables portfolio and kind of reach a close on that sometime in 2019, could you just talk about sort of the implications there in terms of the NOL and kind of the timing it with which you might - does the cash taxpayer status get pulled forward in the case of renewables portfolio sale?

[Liam Stewart:]

Yes, it's a good question Tristan. I think in terms of the NOL we would actually anticipate that this year we would end the year with costs to zero NOL down and that will sort of depend ultimately on how much capital we deploy in the fourth quarter and the gain on the AC should absorb pretty much all of the NOL we had at the start of 2017. I think if you think about what we said last quarter that assuming we deploy roughly $350 million to $400 million across capital next year we would anticipate a cash tax liability at the federal level in the vicinity of $15 million to the extent we were successful on the renewable side. And there's still some moving parts in terms of transaction structure which assets will be sold. We've only just appointed financial advisors. There will be some incremental cash taxes on top of that, for a successful transaction. What they would be, it's too early to call it, but that would mean that cash taxes were in excess of that $15 million figure.

[Tristan Richardson:]

Helpful, thank you guys very much, I appreciate it.

[Liam Stewart:]

I mean, just one thing on the renewable side, it's important to point out Tristan is that, the structure of the renewable assets, names sort of notwithstanding the divested EBITDA and I think if you look back at my prepared remarks it was in the $40 million range of contribution this year. Those businesses or the divestiture of those businesses will have very little impact on our operating liquidity. So I did just want to point that out.

[Tristan Richardson:]

Okay, thank you.

[Operator:]

Thank you. And our next question comes from TJ Schultz from RBC Capital Markets. Your line is now open.

[TJ. Schultz:]

Great, thanks.

[Christopher Frost:]

Good morning TJ.

[TJ. Schultz:]

Good morning. First can you just quantify the decrease in storage rates for gasoline and distillates in the New York Harbor in 2019, expand a little on what's driving that and how much does that offset the eventual rebound in utilization?

[Liam Stewart:]

Yes, certainly. I think it's important to note that IMTT is continuing to perform in line with expectations both from the utilization and from a financial perspective. It is the case that we are seeing softness in Bayonne notably for gasoline and distillate. However, it is our expectation, that utilization will recover as we approach the implementation of IMO 2020. And as utilization increases we also anticipate that there will be a consistent increase in storage rates, but it's not simply a case that we are waiting for the market to recover. With respect to Bayonne, we are also looking at a number of projects which will assist in driving utilization focused on the repositioning of that terminal, including the truck rack capacity that we talked about in our prepared remarks which is really increasing the multi-modal distribution capability and then also looking at increasing Bayonne's connectivity to important pipeline infrastructure which we also expect to increase demand for storage and handling at that terminal. And so, our view currently is that we anticipate there to be an increase in demand most notably the second half of next year and once excess capacity gets taken out of the market, we anticipate that there will be a similar recovery of rates.

[TJ. Schultz:]

Okay, so the rate pressure is really nearer term and then you're expecting rates to recover starting back half of next year?

[Liam Stewart:]

Yes, rates will clearly follow increases in utilization as excess capacity gets taken out. So we need to see how that plays out. But you will appreciate that as customers start to finalize what their approach will be to IMO 2020, whether it's sort of storing high or low sulfur bunker fuel or whether it's blending, Bayonne is ideally placed to respond to whatever customer’s response is. And therefore we anticipate that to drive utilization and then rates to follow. But as I said, but we're also quite clear, we're not simply waiting on a recovery or recovery in demand. We're also looking at these other projects which will enhance Bayonne’s infrastructure offering to our customers.

[TJ. Schultz:]

Okay, what's the utilization at Bayonne now our excess capacity?

[Liam Stewart:]

Is not a rate that we disclose for commercial reasons as you'd appreciate.

[TJ. Schultz:]

Okay understood. If we look at Lower Mississippi the Pin Oak Mount Airy Terminal changed hands recently, any impact on the competitive dynamic for you on the lower Mississippi from new ownership or view on capacity they may bring on?

[Liam Stewart:]

Yes, the clearly in the short term we don't expect any impact on IMTT given the contract structure. But I think there are a number of interesting observations which are worth noting. One is the reported price paid by Marathon. I think underlying the inherent value in these terminal infrastructure businesses on the Lower Mississippi and when you think that St Rose our terminal has superior facilities and I think it’s sort of interesting to note. I think the other important point that we take away from it is that clearly that indicates to us what we’re seeing and that is refiners increase demand for storage capacity as they look to respond to IMO 2020. I mean, clearly we're not privy to Marathon's strategy there, but I think to us it indicates the fact that the repositioning that we're going through at St. Rose would sort of be supported by Marathon's acquisition.

[TJ. Schultz:]

Okay, it makes sense. Just last on capital deployment moving forward obviously a lot of focus on repositioning. IMTT and I know it sounds like you just met with the board, but how active are you on other or new lines of business options, were there any specific options presented to the board and that's just on hold right now, just trying to think about longer term within the $350 million next year kind of the mix of what could be spent and then longer term as you think about other options?

[Christopher Frost:]

I'll take that one and Liam will add color. That as we sort of said in the prepared remarks that the - we met with the board during the strategic retreat and decided that the most appropriate path forward in order to maximize shareholder value was really to focus on our core businesses in order to drive growth and EBITDA and free cash flow. We see the successful execution of that strategy then enables us to look at potentially other verticals, but for the time being our focus is at least clearly on our three core businesses.

[Liam Stewart:]

Yes TJ, it’s Liam. I think if you sort of think about our capital program for this year we spent roughly $140 million year-to-date, and as we said in the prepared remarks anticipating spending $200 million this year, that is all for our existing businesses. And then if you look at our backlog for next year where we sit today, we have roughly $170 million of backlog in the existing businesses. And really our focus from a capital deployment perspective is reinforcing the infrastructure characteristics of the existing verticals and that goes hand in hand with the non-core divestitures that we've done over the course of the year as well. So really focus on existing businesses and seeing the trajectory of those businesses growing before we look at any external or any other verticals.

[TJ. Schultz:]

Okay, thank you.

[Operator:]

Thank you. And I am showing no further questions at this time. I would now like to turn the call back to Christopher Frost, CEO for closing remarks.

[Christopher Frost:]

Thank you for participating in our conference call today. We will again be on the road meeting with investors and analysts at conferences and in one-on-one meetings in the weeks ahead. We look forward to speaking with many of you during this time and of course we'll update you on our financial performance for the full year 2018 and provide guidance on 2019 in our update in February.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.