Macquarie Infrastructure Holdings, LLC
Q1 2017 Earnings Call Transcript

Published: 4 May 2017

[Operator:]

Good day and welcome to the Macquarie Infrastructure Corporation first quarter 2017 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Jay Davis, Managing Director of Investor Relations. Please go ahead, sir.

[Jay Davis:]

Thank you, Andrew. Good morning. Welcome once again to Macquarie Infrastructure Corporation’s earnings conference call. As noted, this one covering the first quarter of 2017. Our call today is being webcast and is open to the media. In addition to discussing our quarterly financial performance on this call, we’ve published a press release summarizing the results and filed the 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 James Hooke, let me remind you that this presentation is proprietary and all rights are reserved. Any recording, rebroadcast or other reuse 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, non-public presentation. The presentation has been prepared solely for informational purposes and is not a solicitation of an offer to buy or sell any security or instrument. This presentation contains forward-looking statements and 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 the 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 risk factors, 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 and we undertake no obligation to 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. With that, it is my pleasure to introduce Macquarie Infrastructure Corporation’s Chief Executive Officer James Hooke.

[James Hooke:]

Thank you, Jay. And thank you to those of you participating in our earnings conference calls this morning. We’re pleased to have delivered another of stable operations and growth in cash generation. MIC remains an attractive total return investment opportunity. We’re tracking to our stated goal of double-digit growth in free cash flow, calculated on a per share basis for the year 2017. Together with a current yield of right around 6.5%, our guidance implies a total return in the mid to high teens over the next 12 months, a return that, given the risk profile of our businesses, we believe should be compelling. An important component of the increase in cash generation this year, about one-third, is expected to come from the deployment of growth capital. To date, we are ahead of where we expected to be relative to our guidance for the deployment of $350 million in a combination of growth projects and bolt-on acquisitions. Indeed, from where we sit today, we feel we’re more likely to deploy in excess of $400 million on growth projects and bolt-on acquisitions in 2017. In particular, we completed more than $50 million of the roughly $300 million in projects in our backlog at the start of the year. We’ve closed on approximately $66 million of smaller bolt-on acquisitions and we’ve added approximately $20 million of new projects to our backlog. One of the benefits of the diversified portfolio is the fact that our results are not tied to the fortunes of any one business. Our first quarter financial results included continued strong outperformance at Atlantic Aviation, where free cash flow was up 15.3% and MIC Hawaii where free cash flow was up 37.5%. This was offset by most underperformance at our Contracted Power segment where free cash flow was down 15.4%. Meanwhile, IMTT performed in line with our expectations, with free cash flow up 6%. In aggregate, the increase in cash generation by MIC was consistent with our expectations. Adjusted free cash flow, when looked at per share, was up 7.2%, after taking into consideration the 2.5% dilution associated with the shares issued in settlement of fees in 2016. Relative to market expectations, our results were in line with respect to EBITDA and ahead with respect to free cash flow. At segment level, while there was underperformance in Contracted Power, we also have to clarify the impact of seasonality on that business. We made only one small adjustment to our reported proportionally combined results to arrive at the adjusted free cash flow figure, the figure we believe best represents the recurring cash generation by our businesses. The adjustment is one that we’ve flagged previously, namely the elimination of the non-recurring $2.4 million expense incurred in implementing our shared service initiative. With the improvement in cash generation and in line with our continued good prospects, the MIC board has authorized a cash dividend for the first quarter of $1.32 per share, a payment that represent a 10% increase over the dividend paid for the first quarter in 2016 and one that is precisely consistent with our guidance for 2017. The payout ratio for the quarter will undoubtedly seem low to some. Keep in mind that the ratio does vary quarter to quarter and we look to a target of 75% to 85% payout of free cash flow over a longer period of time. Our strategy of driving operating performance improvement at each of our businesses, together with effective deployment of growth capital, played out in each of our reportable segments during the quarter. Atlantic Aviation performed on the basis of continued increases in flight activity and solid growth in fuel sales, stemming from that flight activity. Contributions from facilities constructed or acquired in 2016 were positive as well. The strong performance overall was partially offset by temporary closures of certain bases in the Intermountain West as a result of record snowfall. The contribution from deicing activity was flat versus 2016. I would also note that the first quarter this year was shorter than the first quarter of 2016, 2016 being a leap year. Simply dividing the Atlantic result by the number of days in the quarter suggests 2016 gross profit benefited by approximately $700,000 from that extra leap year day. Domestic general aviation flight activity, the primary driver of Atlantic’s results, increased by better than 2% in the first quarter of this year based on data reported by the FAA. This fundamental driver of performance was a contributing factor, but not the sole factor in the reported increase in gross profit at Atlantic. Atlantic’s gross profit increase was once again multiples of the increase in flight activity. The 6.3% increase in gross profit continues to reflect several items, including market share growth. Atlantic is capturing more of the business at the airports where it competes with other providers due to network effect and superior service. Two, the increased size of the average plane. Larger planes take on more fuel. And third, contributions from construction and acquisitions in 2016, such as the Montrose FBO near Telluride and the new 35,000-foot hangar at Los Angeles International Airport. Atlantic’s EBITDA increased by 9.1% on the improvement in operating results, including contributions from acquisitions and investments. Including the interest associated with the holding company level convertible notes issued in October of 2016, which we attribute to Atlantic Aviation, the total interest expense decreased on the back of lower rights. All of this contributed to an increase in Atlantic’s free cash flow of nearly 15.3% in the first quarter. Changes in cash taxes and maintenance capital spending versus the first quarter in 2016 offset one another. Trading at Atlantic Aviation through the first four months of 2017 has been consistent with the trends in place over the past few years. Domestic flight activity continued to tick higher by roughly 2%. The higher price of jet fuel this year versus last – remember, it tracks the price of crude oil – has not had an impact on the performance of our business. Fluctuations in the price of commodity have been and continue to be a pass-through to the consumer. This has been true with crude oil at $140 a barrel or at $20 a barrel. We’re pleased that Atlantic Aviation has acquired the FPO at Oxford Airport in Connecticut near Waterbury. Oxford is a top 250 airport in terms of general aviation flight activity, but more importantly is a base of operations for aircraft that typically serve customers arriving and departing via White Plains and Teterboro. In effect, it’s a dormitory for private jets. As a dormitory, Oxford has three times the hangar space of the Atlantic FBO. It generates a much higher percentage of its total EBITDA from hangar rental, some are longer term contracts, than from fuel sales. From a perspective of quantum of capital deployment, it’s analogous to us having acquired two FBOs. At IMTT, perhaps not surprisingly, not much change in the first quarter. Utilization remains strong. In fact, it was slightly up to 96.3% for the quarter compared with 96.1% last year. Storage prices in aggregate five-year [ph] across all product categories in all terminals was stable. As has been the case for the past six to seven quarters, demand in some categories was more robust than others. Aggregate rate growth for chemicals and vegetable and animal oils remains positive, while the strength of demand for some petroleum products, most notably gasoline, remains more subdued. As has been the case, we've been focusing on trying to push the tenure or length of contracts rather than pushing rates. At 50,000 feet, we have chemicals and vegetable and animal oils offsetting gasoline to produce a stable outcome, the benefits of a portfolio. OMI environmental solutions was a modestly positive contributor to the overall IMTT results on increased spill response activity. One quarter doesn't make a trend, but it’s an improvement versus the past five or six quarters. The cost of services was down at IMTT, but the reductions were offset by increased SG&A, due primarily to a massive increase in Louisiana franchise taxes, and the increased activity at OMI. Reported free cash flow increased, driven largely by reductions in maintenance capital expenditure. Although expenditure in the first quarter was low, we remain comfortable with our full year guidance for maintenance capital expenditures of between $30 million and $35 million in 2017. The relative underspend in the quarter will reverse over the course of the year. The first quarter maintenance capital expenditures is typically lower at IMTT, given the winter weather in Bayonne. Trading through the first four months of 2017 has been in line with expectations. We continue to expect the top line growth at IMTT will increase at roughly inflation-linked rates. Expenses are expected to come down with the implementation of shared services and contribute to growth in EBITDA over and above the amount associated with the typical operational leverage in the business. Free cash flow generated by IMTT should grow at an even faster rate as a result of the anticipated year-on-year maintenance capital expenditure controls. At Contracted Power, as is being reported widely this year, both solar and wind resources were below long-term averages in much of the US during the first quarter. In our portfolio, the impact was primarily on the wind facilities in Idaho where resources were approximately 85% of the long-term average, not as weak as 2015, the El Niño year, but worth mentioning. Conversely, they were relatively stronger in the first quarter of 2016. Over time, these things tend to revert to the mean. The decline in segment contribution also reflected a reduced contribution from BEC versus the prior comparable period as a result of the relatively mild winter in the northeast and the required emissions testing. The weather effect is not new. As we’ve said many times, we prepare extremes in weather in relation to the performance of BEC, and this past winter was rather mild until early March. The emissions testing, which occurs every five years, was a bit of a kick in the head. We knew it was coming, but we thought it wouldn't be until the second quarter. The timing of this testing is determined by the New Jersey regulator. We would much prefer to have done the test during a shoulder period, like the second quarter rather than a peak month like March, but our preference is irrelevant. One has to do as told in this area of permitting. As a part of air permit renewal process, BEC was required to run on fuel oil for an extended period during the first quarter. The combination of must-run, even where there wasn't demand for peaking power, plus fuel oil, even when gas was cheaper, equaled lost money for a portion of the quarter. But the permit was renewed and we shouldn't have to be concerned about that issue for another five years. Proportionally combined free cash flow generated by all Contracted Power in the quarter declined by about 15%. So, keep that in perspective. That's approximately $1.5 million or less than $0.02 per share. As part of the variability in the contribution from our renewables portfolio, it’s simply one of scale. And like most portfolios, the performance of the renewable proportion of Contracted Power will be less volatile as we increase the number of projects and broaden the geographic dispersion. Following that theme, we have completed the acquisition of the first of the projects, developed by the renewable firm we invested in late last year. It's a small project, but evidence of the fact that the relationship can lead to good projects being added to our portfolio. The project is expected to generate an IRR at the higher end of the range we've seen in this space recently, around 9.5%. The tax credits have the added benefit of eliminating our alternative minimum tax in each of 2017 and 2018. More important, however, given the relative size of BEC in our Contracted Power segment is the progress we're making with various construction projects underway in Bayonne. The gas lateral connecting BEC with Spectra pipeline has been completed and we expect BEC to have access to the alternate gas supply in May. BEC is expected to benefit from a price differential between the Spectra and Williams pipelines during the next seasonal increase in gas demand, primarily in winter months and, to a lesser extent, in the height of summer. The installation of equipment at BEC necessary for providing new contractual ancillary services qualifying for tariff payments from the New York ISO has been completed. This adds to the contracted portion of BEC’s total earnings. The engineering and construction of both the gas lateral and the additional equipment for the ancillary revenue took slightly longer than originally anticipated. As a result, these projects will make a smaller contribution to our 2017 result than we expected, although they remain important pieces of the overall value in BEC. The BEC II project, a 130 MW of additional generating capacity, is on track and we continue to expect to reach commercial operations in the first quarter of 2018. The team on that project has not encountered any significant issues and the onset of warmer and drier weather should contribute to an acceleration in the pace of activity. At MIC Hawaii, we saw a good return to growth at Hawaii. Goss margin was up 13.7%, EBITDA was up 11.2% and free cash flow was up 37.5%. The gross margin contribution from the segment reflects both the impact of businesses acquired in 2016 at a 4.2% increase in the volume of gas sold by Hawaii Gas compared with the first quarter in 2016. The decrease in the headline gross margin figure includes the impact of unrealized losses on commodity hedges. Excluding the non-cash impact of the propane hedges, reported gross margin figure we look at would have increased by 13.7%. Segment expenses were higher as a result of acquisitions, but reported EBITDA excluding non-cash items increased by 11.2%, reflecting the top line growth coming from these acquisitions and ongoing focus on managing expenses effectively. Free cash flow at MIC Hawaii was up 37% as a consequence of the improvement in operating results and reductions in both income tax and maintenance CapEx compared to the first quarter in 2016. Trading through April has been in line with expectations across each of the MIC Hawaii businesses. Following the quarter-end, MIC Hawaii closed on an investment in another smaller renewable power generation and storage operation in Hawaii. The project broadens the scope of our MIC Hawaii renewable energy operations and reinforces our commitment to reducing the cost and improving the reliability and efficiency of energy in Hawaii. Of note, the development team at Critchfield have been on a number of potentially attractive projects that could accelerate growth in the segment contribution going forward as well. We’re confident that this business will prove to be an important driver of growth for the MIC Hawaii segment. The implementation of our shared services initiative is proceeding in a manner consistent with our overall plan. The adjustment for items such as severance, retention benefits and implementation services related to the shared service initiative totaled $2.4 million in the quarter. We remain confident in our ability to reduce our baseline general and administrative expenses by $12 million to $15 million per year in 2018, although it's fair to say that the savings will not be spread evenly or even proportionately across our businesses. Some businesses may simply benefit from an improvement in service levels. For modeling purposes, we suggest that you factor in a reduction in our underlying general and administrative expense for the 2017 of approximately $8 million, given the partial year impact we will see in 2017. Stepping back from the segment level for a moment, I’ll touch on some of what we are seeing in terms of growth capital deployment opportunities. A number of shareholders have asked us what we’ve been seeing in terms of capital deployment opportunities. We've taken the position with our disclosure that when a project is being reviewed or approved by our board, we will add it to our backlog and our growth discussion. By definition, that figure is less than the total number of projects we’ve reviewed, given that not everything is approved or even submitted for approval. Importantly, we’ve had no shortage of opportunities to evaluate during the past year. I've mentioned this in previous calls, but when we looked at all that had come across our desk, frankly, even we were surprised by the numbers. For the 12 months ended March 31 of this year, we've been privileged to be able to review and evaluate transactions with an enterprise value of roughly $10 billion. That’s the equivalent in effect to an entire additional MIC. Clearly, that suggests that, whether a result of our own efforts, efforts by advisors or the leadership teams at our operating companies, we’re having no difficulty generating potential investment opportunities. It also suggests that we’ve remained disciplined, avoiding the temptation to deploy capital for the sake of deploying capital, and instead focused on finding sensible value-accretive opportunities. We have not, for example, chased the compressing returns in the renewable power sector. Instead we’ve acted on an opportunity, Red Hills, to acquire additional generation from a vendor with whom we were able to develop a preferred relationship. Part of our discipline comes from the fact that we don't have to do a big deal in order to continue to grow at what we believe is an attractive rate. Said a bit differently, it's far easier to get over ten one-foot hurdles than it is to get over one ten-foot hurdle. And as we know, committing to deployment of a particular amount of capital or deployment of capital in a particular vertical leads to stretching unnecessarily for the sake of meeting the guidance. In that vein, we find value in adding FBOs like Oxford to the Atlantic network. We’ve said that we typically have 6 to 10 conversations underway with respect to potential transactions for Atlantic. At this moment, the value of those opportunities is more than $300 million. But it’s not Atlantic. As of today, at IMTT, we are progressing various capital deployment opportunities, having an aggregate enterprise value of more than double that at Atlantic. We've been asked about the impact of the federal government's focus on infrastructure and what it means for MIC. It remains early days, but it is clear to us that it has generated more than just discussion. The example I would point to would be an acceleration of commercial airport privatizations. Based on these various factors, we are confident in our deal flow and believe that it means two things. First, over the near term, we’re confident that our growth capital deployment in 2017 will exceed our original guidance of $350 million of projects and bolt-on acquisitions. That now looks like a $400 million figure. Second, we expect at a minimum to deploy capital over and above the projects and small acquisitions, sufficient to absorb the expected conversion of our first tranche of convertible notes in July of 2019. At a point prior to July 2019, we expect to deploy an additional approximately $350 million in one or more value-creating opportunities. The bottom line, we have a solid deal flow and the capability to evaluate those deals and the capacity to execute on them when they make sense. In summary, MIC's results for the first quarter were consistent with our expectations overall and reflective of our guidance for both adjusted free cash flow and dividend growth. MIC's existing businesses continued to perform well overall. Ongoing cost reductions associated with the implementation of our shared service initiative were consistent with our guidance for annualized savings of between $12 million and $15 million. As expected, the savings in 2017 have been partially obscured by non-recurring organization costs. Through April, we’ve completed growth investments in small acquisitions with a value of approximately $117 million. And at that pace of activity, points to the deployment of more than $400 million over the year. Importantly, with respect to the growth capital deployment, we added approximately $20 million worth of projects to our backlog during the quarter and we are actively engaged in reviewing and analyzing projects and transformational opportunities with a substantial value. On the strength of our results for the first quarter, the MIC board authorized a dividend of $1.32 per share, up 10% on that distributed in the first quarter of 2016 and consistent with our guidance. With that, I’ll wrap up the prepared portion of our call and turn the proceedings over to our operator who will open the lines for your questions.

[Operator:]

Thank you, sir. [Operator Instructions]. And our first question comes from Tristan Richardson with SunTrust. Your line is now open.

[Tristan Richardson:]

Good morning, guys.

[James Hooke:]

Good day, Tristan. James, thanks very much. Appreciate the sort of update on the 2017 potential spend. I’m curious, when you talk about $350 million in one or more value-creating opportunities before 2019, is that in excess of your sort of normal targeted run rate of $350 million per year in capital deployment opportunities?

[James Hooke:]

Yes, it is. So, we’ve been asked by people, some people, which is you’ve got the $350 million of convertible bonds, when they convert in 2019, what are you going to do with the money or the effective balance sheet capacity. And I think what we’re saying today is based on the deal pipeline we see in front of us, we expect to continue to do the sort of $350 million to – I guess it will $400 million this year in normal and it’s purely coincidental that there’s another $350 million. This is like [indiscernible]. But when those convertible bonds convert, we’re pretty convinced that we will be able to do another transaction above and beyond what I've spoken about of at least $350 million. I think the good news about that for existing shareholders is we effectively have the balance sheet capacity to absorb that, without having to – we could effectively do that without levering up or having to issue – a big look at new capital to absorb it because that convertible bond, we think, will become equity.

[Tristan Richardson:]

No, that makes sense. That’s helpful. Thank you. And then just another one, you talked anecdotally about commercial airport privatizations, does that directly, in your view, sort of increase the potential pool of FBO acquisition candidates longer-term?

[James Hooke:]

So, I think it does. So, I’d answer that question in two regards. One is, what does it mean for the FBO business and we think that it’s positive, would be step one. The second, though, is if you sort of take it away from Atlantic Aviation, there’s been this long discussion in the US, which is, when will the US move to the level of asset privatizations that you've seen in other countries of key infrastructure assets around the world, whether that’s Europe, Canada, or Australia. And for years, there’s been the sort of the sense that the US was on the verge of doing something. I think with the number of commercial privatization – airport privatizations we’re seeing come on to the radar that talk has actually now turned into action. I think secondly, in terms of the new secretary of transport and the Trump administration, its talk on infrastructure, the key part of that discussion that is going on in DC is not a discussion as to exactly how much can the government fund. It’s how can the government establish a funding mechanism that attracts more private capital to infrastructure that will create a whole bunch of opportunities. So, this infrastructure spending as there was in, say, the 2009 stimulus package, that is just the government spending more on infrastructure. I think that's great for the country, but it doesn’t really mean much for MIC. If there is, as is being touted now, a regime which is, the government will put in place mechanisms that make it easier for municipalities and states to attract private capital to infrastructure, that is potentially transformative for MIC. And, look, infrastructure is being mentioned by enough politicians over the years that we sort of slightly yawn when it happens because the question is, is this just the latest talking point or will something happen. I think what we're impressed by or pleased by at the moment is, there are right now six airports on the FAA list for privatization. That’s gone up form zero to six in relatively quick period. So, there is more activity going on in the whole space of public-private partnerships around infrastructure. And that, for us – people have said to us, do you think this is just the usual hot air of the last 15 years or is something happening? Who knows? It could be hot air. But we see more signs of real tangible activity than we’ve seen at any point in the last 15 years would be the way I’d characterize it.

[Tristan Richardson:]

No, it's great. Thanks very much, James.

[James Hooke:]

Thanks, Tristan.

[Operator:]

And our next question comes from Ian Zaffino with Oppenheimer. Your line is open.

[Ian Zaffino:]

Hi. Great. Thank you very much.

[James Hooke:]

Hi, Ian.

[Ian Zaffino:]

How are you doing there?

[James Hooke:]

Good.

[Ian Zaffino:]

I know you mentioned about IMTT trying to push for longer duration contracts. Has that been successful? Have you seen an increase in your contract length? If you can maybe give us a little bit more detail around that, that would be great.

[James Hooke:]

So, I would say it’s been – in aggregate, yes, it’s been successful. It hasn’t been as successful as fast as I would have liked. But, yes, we are slowly pointing out that length and that duration, but it’s not proceeding at the sort of pace. So, we’ve got a 2.2 weighted-average contract life duration. That implies – that’s 2.2 weighted average [indiscernible] that implies the average contract was 4.4 years in duration. We’re not signing stuff up for four years. We continue to sort of lengthen it by months compared to what we were extending it previously. But it’s been slow sledding in terms of pushing the duration. So, we continue to focus on that would be the answer I guess. We’re not going backwards. But as an impatient person, we’re not going forward as fats as I would like because we’re not renewing everyone for 10 years instantaneously. Yes, there we have it. So, some progress, but not as much as I’d like.

[Ian Zaffino:]

Okay. And then, the other question would be, given what you’ve been seeing in Contracted Power on that side of the business, how do you think about, I guess, volatility of the I guess cash flow stream maybe of the aggregate company as you get maybe deeper into Contracted Power, whether it’s BEC II, BEC III and so on and so forth?

[James Hooke:]

[indiscernible] answer I would say is there is more volatility, I guess, in Contracted Power. Partly, that’s a function of our portfolio size and partly that’s just a function inherent with the sector. But where we see that volatility, I think it’s important is, you see it in a sort of quarter-on-quarter sense. But over the sort of – if you take a sort of two to three-year time horizon, this is the sector that reverts to the mean the most. Like, you know with the sort of variability in wind production exactly where it’s going to be over two to three years. So, the first thing I’d say is, over a sort of two to three timeframe, I’m actually not that worried about the variability. I understand that some shareholders who hate to see variability quarter-on-quarter get the jitters about that. I think as investors for the long term, that level of volatility and variability doesn’t impact us. If we saw volatility and variability that wasn't sort of associated with normal standard deviation fluctuations in the amount of sunlight or the amount of wind, yes, then I would be more worried. But given that essentially we know what’s going on, I’m less worried. Having said that, and this is the sort of portfolio construction approach that we take to the business, you’re never going to see us with that sector of the business being sort of more than 20% of our business. You just – by definition, as much as I’m comfortable with that variability over a number of years, I get that if it became too big a part of that business. And that’s what we’ve sort of seen with other sectors as well, which is we don't want any one sector being a bigger part of our business. That fluctuation you’ve seen in Contracted Power makes me think it’s highly unlikely that that would ever be more than 20% of our business. That’s just a sort of reality of, I think, where we’re going to get to. But I would almost – I would then say, I don’t think you’re going to see Hawaii be more than 20% of our business. Over time, if we had a fifth vertical, I'd like to see Atlantic Aviation and IMTT not represent – like, if we could ideally construct it, given that with Contracted Power we don’t stop with, for want of a better term, a legacy position as we do in IMTT and Atlantic from a portfolio weighting perspective, it’s much easier for us to control the portfolio weighting there. So, I do think that there is a sort of variability in it. And I hear the reactions to it. It’s not one that causes us undue concern. But I also don’t want to say that – I know some shareholders have sort of conniptions about this stuff, and so I don’t want to their downplay their conniption. We’re listening. I get it. But sort of that would be how I say we balance it out.

[Ian Zaffino:]

All right, great. Thank you very much.

[James Hooke:]

Thanks, Ian.

[Operator:]

And our next question comes from Jeremy Tonet with J.P. Morgan. Your line is now open.

[Jeremy Tonet:]

Good morning.

[James Hooke:]

Hi, Jeremy.

[Jeremy Tonet:]

Thanks for all the color today. Really helpful. I'm not sure if you touched on it in your remarks so far, but just want to circle back on the Virginia opportunity that you guys had spoken about being a potential for you guys down the road. Just any thoughts you could share with us there?

[James Hooke:]

Yeah. So, we didn’t talk about it. You didn’t miss anything. The answer is we continue to work on it. We continue to try and progress it. By definition, it’s a longer lead time project than anything else. So, when there’s new news, we’ll come back. But we’re – the team on that is sort of pedaling away or running on the treadmill or whatever the metaphor for working hard, developing a sweat and getting annoyed by all the stupid questions asked. So, the sort of low morale that we try and induce in the team in terms of hard work with no tangible result yet is playing out there.

[Jeremy Tonet:]

That’s helpful. That’s it for me. Thank you very much.

[James Hooke:]

Thanks, Jeremy.

[Operator:]

And our next question comes from TJ Shultz with RBC. Your line is now open.

[James Hooke:]

Hi, TJ.

[TJ Shultz:]

Hi, good morning. I just want to dig into that $10 billion of enterprise value for opportunities that you have reviewed, I guess, much of which didn't get to the board level essentially. So, a couple of questions. I think first, just what types of assets are you seeing or reviewing most often? And then second, how much of that was larger scale that would essentially be a fifth vertical and are you still considering a fifth vertical?

[James Hooke:]

So, I would say, it splits roughly 50-50 into what would have been added into our existing business and what would've been fifth vertical. So, I guess, that then answers your next question, which is on fifth vertical, we remain actively involved and looking for that. We still, in the current price environment, are much keener to do something in that regard that is adjacent to what we do or has synergy value with what we do, either complementary customers, complementary suppliers or somehow is adjacent. And the reason I say that is we just – that gives us an ability to attract or generate some inherent synergy value that absent that that we couldn’t do. I think all the sectors that we previously talked about, we’ve looked at during that time period. In many ways, the part that’s pleasing to me is, when I look at sort of where that’s been is, we’ve achieved the free cash flow growth we’ve achieved and we’ve been able to give the guidance we’ve been able to give without factoring any of that stuff into the equation and we’ve been able to remain discipline at a time – I think we’ve seen some transactions in the last three to six months where people have blown their brains out and we’re happy not to be part of that club of value destructive capital deployment. But we’ve a looked at a lot of stuff. One of the things I think that we would say is, given the increase in activity in the smaller level transactions and opportunities that enables us to say $350 million is more likely to become $400 million this year, I think we’re seeing an increase in the level of activity of opportunities that we’re reviewing and looking through as a team that makes us feel that’s a relatively – it seems a more robust environment for us at the moment than other things have.

[TJ Shultz:]

So just on that last point, where – so, typically, do you get the comfort level to increase the spend this year to $400 million. I know you talked about $300 million in the Q in Atlantic and double that at IMTT, if you can just kind of provide a little bit more color, maybe particularly at IMTT, kind of where some of the opportunities near-term look to be?

[James Hooke:]

Yes. So, I think that incremental activity that we’re reviewing in that $350 million to $400 million is actually across the board. I think in the case of Atlantic Aviation, we’re seeing a few more opportunities than we would have seen. I think there are a few more opportunities in the renewable – contracted renewal power space that are coming down the pipeline from the developers that we’ve got the partnerships with. I think in the jet fuel space, with IMTT, there’s a lot of work in progress that's being done there. I think in terms of IMTT Bayonne in New York Harbor, there’s a lot of stuff that we’re looking at in terms of potentially increasing how our truck rack capability at Bayonne. And one of the reasons for that, which is a sort of – this may or may not happen, but I think it will generate opportunity for us from looking. Colonial Pipeline has announced that, from 2018, sometime in 2018, they may no longer take jet fuel because they’ve sort of got excess capacity and there’s reason for them why pumping jet fuel off Colonial may be beneficial. That's a set of opportunities in New York Harbor that we’ve been pursuing for a fair while. As you know, we talked about – one of the reasons for that is because we saw that Colonial may look to make that move. That’s potentially created some opportunities for us. That will have potential implications for gasoline, which is one of the reasons we’re looking at potentially adding to our truck rack capability for gasoline at IMTT Bayonne. It also is why we are potentially looking at enhancing our pipeline capacity there. And also, with the product flow, as it’s happening in the Northeast [ph], it may see just a little bit more with adding some rail capacity there. So, I think in IMTT, specifically in Bayonne, there’s probably more going on capacity enhancement like that than we’ve seen for a while. With all of this stuff, though, I also wanted to [indiscernible] which is, if any of this becomes a dry well for us, some of the FBO vendors want too high a price or the renewable growth is not at good returns or Colonial doesn't do what it’s saying in relation to jet, we’re not going to do any of that. So, one of the challenges we face in sort of talking about growth CapEx is someone then turns around and says, you didn’t end up doing that, you told me what you were looking at doing and that didn't happen, doesn’t that represent a failure. I think one of the things I want to make it clear is some of this stuff may not happen because, as we dive deeper into it, we decided that it would be a waste of shareholders’ money. But from where we sit today and the stuff that’s going on, it feels pretty good. And if you look at the way we’ve started the year, we’ve come out of the box well. So, that’s what gives us a bit of happiness, excitement. I also want to say, for the conspiracy theorists out there, there’s no deep deal that we’re looking at, we’re on the back of – there’s a capital raise coming because we need to raise capital to do it. All of the stuff that I’m talking about is stuff that we can absorb within the balance sheet capacity we’ve got today, but I also know every now and then people think, they’re seasoning for – is there some kind of pre-seasoning going on for a capital raise. The answer to that is no. But I also know we’ve got a group of very smart shareholders who parse every word you say to see if they can glean some secret message. I lack the intelligence to be that subtle would be, I guess, transparently obvious to everyone who has ever met with MIC. Anyway, does that answer your question?

[TJ Shultz:]

It does. I appreciate it. Thank you.

[Operator:]

And I’m showing no further questions at this time. I will now turn the call back to Mr. James Hooke for closing remarks.

[James Hooke:]

So, consistent with our effort of late to attract additional investors, we will be on the road participating in a number of road shows and conferences over the next couple of months. If there’s someone you think we should be introduced to the MIC story, please let Jay or Mike know and I will add these folks to our outreach. We had a good set of meetings with our management team – key lenders in New Orleans and there’s some more of those going on. We do want to thank our lenders and providers of capital who are important partners to us.’ And finally, one of the challenges that goes with implementing an initiative like shared services and cost reduction is whilst it's necessary in terms of value creation for shareholders, it does mean that there are job losses involved. Many of the people, when we announce that cost reduction, who have left our organization, were very long-standing and extremely loyal servants of MIC and the businesses that we have. Normally, I single someone as a shout-out at the end of the call to say thank you to. I really do want to thank those people who’ve worked so hard for us over so many years. A very difficult decision that they’re no longer with us, but we do thank for their years of service at IMTT in particular where probably the headcount reduction was greatest. So, we thank those people. We look forward to speaking with you on the next occasion and have a good day. Thank you.

[Operator:]

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