Macquarie Infrastructure Holdings, LLC
Q1 2014 Earnings Call Transcript

Published: 1 May 2014

[Operator:]

Good day and welcome to the Macquarie Infrastructure Company First Quarter 2014 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, Investor Relations. Please go ahead, sir.

[Jay Davis:]

Thank you Janine and thank you everyone for participating in Macquarie Infrastructure Company’s earning conference call. This covering the first quarter of 2014. 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 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 may be downloaded from our website at www.macquarie.com/mic. Before turning the proceedings over to Macquarie Infrastructure Company’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 use of this presentation in whole or in part without the prior written consent of Macquarie Infrastructure Company is prohibited. This presentation is based on information generally available to the public and does not contain any material non-public 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 and we may in some cases use words to 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 in the forward-looking statements. Additional risks to 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. With that, it is my pleasure to introduce Macquarie Infrastructure Company’s Chief Executive Officer, James Hooke.

[James Hooke:]

Thank you Jay and thank you to those of you participating in our earnings conference call today. We appreciate you joining us for this update on the performance and prospects of MIC. 2014 is off to a good start for MIC, a little better than we had forecast. Headline proportionally combined free cash flow increased by 7.9% versus the first quarter last year. Our largest business is performed well through the quarter and had continued to perform well subsequently. Atlantic Aviation reached financial close on the Galaxy transactions yesterday and an increase in our quarterly cash dividend to 93.75 cents per share or from $3.65 to $3.75 on an annualized basis has been authorized. In short, the financial and operational performance of the Company through the first quarter and in fact the first four months was marginally ahead of our expectations. Now as ever, there were typical items both positive and negative during the period. As most of you will know, we raised three buckets of additional equity in 2013. First, in connection with the refinancing of Atlantic Aviation, in a transaction that eliminated the cash flow suit in place at that business and allowed us to substantially increase our quarterly dividend. Second, MIC’s manager continued to reinvest all base management fees and any performance fees to which it was entitled in additional LLC units in 2013. And last, in December 2013, we raised capital to facilitate the acquisition of several FBOs in Florida and Colorado. All together the number of share outstanding in the first quarter of 2014 increased over the number outstanding in the first quarter of 2013 by 18.5%. So notwithstanding that the proportionally combined free cash flow rose by 7.9%, there was a headline reduction in the proportionally combined free cash flow per share of $0.11 or 8.7% in 2014. However, there are three matters that should be considered to understand the underlying performance of MIC. The first has to do with the acquisition of the six FBOs in the Galaxy and Boca Aviation transactions. For convenience sake I will simply refer to these as the Galaxy transactions during the remainder of my remarks. We’ve raised a 123 million in additional capital in mid-December of 2013 to help fund the Galaxy transactions. We expected and we disclosed at the time that, the transaction was not likely to close until last in the first quarter of 2014. Having raised the new equity but not having any contribution to our financial results from the acquisition meant necessarily that free cash flow to share would be adversely impacted for the quarter to use the jargon, we would have one quarter of drag from the capital raised that would be temporarily dilutive until the transaction close. The Galaxy transaction actually took a mother longer to close than we had originally expected due to the delay in receiving the final written consent from one airport. So, the transaction is closed at the end of April rather than the end of March as we had originally hoped. Based on our prior comments with regard to the expected returns from the Galaxy transactions, first quarter free cash flow per share would have been roughly $0.07 higher if we’d own Galaxy for the full quarter. The second matter has to do with the refinancing of Atlantic Aviation in May of 2013. Atlantic’s debt was intentionally unhedged at an unusually low rate, a 1.9% effective rate from October of 2012 through May of 2013 due to the impending refinancing of that business. We hedged Atlantic’s debt following the refinancing in May of 2013 at an effective rate of 4.76%, lower than the 6.5% hedged effective rate in place prior to October 2013, but higher than the temporary 1.93% effective rate in place in the first quarter of 2013. The impact of this rates based upon the debt principal outstanding at the end of the first quarter of 2013 is approximately $0.10 per share. And third, in the first quarter of 2013, IMTT recorded an incorrect tax provision. Although it was corrected in the second quarter and we flagged at that time. While this issue was corrected by the middle of 2013 and had no impact on the full year 2013 results, the timing impact in the first quarter of 2013 was $0.03 per share. So, normalized for these factors, the $0.07, the $0.10 and the $0.03 per share I’ve just discussed, our proportionally combined free cash flow per share for the first quarter of 2014 would have increased by $0.09 per share or 8% versus the first quarter of 2013 not decreased. While there always be ups and downs each quarter, we have called these three items as we believe they cloud be underlying performance of the business and they do not form part of those normal ups and downs of the business within a given quarter. Now, while some of you view this as a subjective ‘‘The dog ate my homework’’ exercise, I believe that it actually shows the underlying performance of the business in the first quarter was good. At an aggregate level, MIC’s proportionally combined gross profit what we consider to be our true top-line grew by 10.1% or $14.1 million for the first quarter versus the first quarter of 2013. A little over half of that growth came from Atlantic Aviation and with the remainder coming from IMTT and our new contracted power business. Proportionally combined costs were up 6.3% or $3.3 million. Off this, $2.1 million relate to seasonal expenses at Atlantic Aviation to do with cold winter, the cold winter which I’ll discuss later and legal transaction and integration cost at Atlantic predominantly related to the Galaxy and MIC transactions. Excluding these amounts, MIC costs were up 2.3%. Proportionally combined EBITDA for the quarter was up $10.8 million or 12.4% with EBITDA margin, which we view as gross profit divided by EBITDA up year-on year despite the transaction’s seasonal costs at Atlantic. Proportionally combined growth CapEx was down versus the first quarter of 2013 where MIC’s spent a net $10.5 million on solar projects that did not recur in the first quarter of 2014 but which we view more as a timing issue given the pipeline of renewable contracted power opportunities we are considering. Across the remainder of MIC’s portfolio, proportionally combined CapEx was up 33%. As a result of the first quarter performance of our businesses and the underlying growth in free cash flow being generated, the MIC Board has declared a dividend of 93.75 cents per share for the quarter, that represents an increase of 2.7% over the dividend for the fourth quarter of 2013 and puts the dividend at an annualized rate of $3.75 per share. Our dividend policy remains unchanged. Namely, our target payout ratio of between 80% and 85% of the free cash flow generated by our businesses as a quarterly cash distribution. Accordingly, or else being equal, we would expect to increase our dividend overtime as and when our free cash flow per share grows. In addition, returning a portion of the free cash flow also gives us the option of funding a portion of our growth CapEx without using 100% debt. In that sense, we can manage our proportionally combined leverage more effectively. By way of the example, the free cash flow for the quarter that we are not paying out in dividend was used to fund the growth CapEx projects and our overall proportionally combined net debt-to-EBITDA reduced from 3.3 times at the end of 2013 to 3.1 times net debt-to-EBITDA at the end of the first quarter of 2014, though this will increase again this quarter as we fund the closing at the Galaxy transactions. In sort, in spite of noise in the reported results, our business performed well during the quarter. In particular, our two largest businesses Atlantic Aviation and IMTT both delivered strong results. We saw continued volatility in the results from Hawaii Gas but we view the issues there as more temporary in nature and our Contracted Power and Energy segment contributed to overall results consistent with our expectations. Notably, as a results of having four additional Solar Projects online this year versus last. Overall, I will characterize the first quarter of 2014 as a continuation of trends that have been present for the past six to nine months. On that basis, we reiterate our proportionally combined EBITDA guidance of approximately $385 million for 2014 and free cash flow per share guidance of between $4.35 and $4.50 per share as provided in our fourth quarter 2013 update. Please keep in mind that, our guidance does not contemplate the potentially beneficial impact of any extension of bonus depreciation, which we estimate to be approximately $0.20 per share at IMTT. With the next few minutes of my remarks, I’ll provide additional color on the performance and prospects of each of our operating entities. IMTT, at IMTT terminal revenue improved by 10.2% compared with the same period of 2013. The improvement was driven by a combination of increase in firm commitments and increase in ancillary services and somewhat ironically the cold winter weather in the Northeast. As many of you will know, certain products require heating to maintain level of viscosity so that products can be pumped. Heavy petroleum products often fall into this category. Heating is achieved using steam pipes, wrapped around or coiled within a tank and the steam is produced by on-side boilers. The heating of tank is provided for in the storage contract with the cost of the energy input, usually natural gas, being charge back to the customer. Perhaps not surprisingly, there a lot of more heating required this past winter than is typically the case. As a result, the higher dollar amount of consumables were recovered in revenue this year versus last. There is of course an offset in the cost of consumables and that shows up in higher terminal operating costs. The increase in terminal operating costs was partially offset by lower repairs and maintenance expense in 2014. Remember that by owned facility was in the midst of recovering from Hurricane Sandy in the early part of 2013 and repairs and maintenance were significant at that time. Overall, however, the increase in revenue was in greater than the increase in costs and terminal gross profit rose by 15.2%. Total revenue and total gross profit both benefited from a larger contribution from OMI Environmental Services in the first quarter compared with the prior comparable period. OMI was involved in larger number of clean-up events this year versus last. Notably, the fuel oils spilled in the Huston Ship Channel in late March. We would expect a slight uplift in the environmental response results in the second quarter was well although the bulk of the clean-up activity in relation to the ship channel event has been wrapped-up. Including Environmental Services, total revenue was up 12.6% year-on-year and total gross profit was up 16% year-on-year. As expected, storage utilization was flat compared with the first quarter in 2013 at just under 93%. The difference between the current level and the historically normal level of about 94% is a function of the large tank on the Mississippi outer service, the cleaning and inspection. There were three elements of IMTT’s performance and business processes that flagged as off concern at the end of year and that required attention. Those of you who participated in the call will remember that I discussed in detailed; First, maintenance capital expenditures. Second, operating expenses. And third, the growth CapEx pipeline. I’d like to thank those shareholders who supported our efforts to be as transparent as possible with respect to the situation of IMTT and who continued to support the steps we are taking to drive performance improvement. The obvious question for shareholders to us is, what happened during the first quarter? Clearly, there was an improvement in cost performance and maintenance CapEx performance in the first quarter versus the fourth quarter, so we are pleased with that. However, much of this improvement was coincidental too rather than the product of enhanced management process and systems. In terms of enhancements to the management processes and systems and adding capability, there has been some limited progress, so we are moving in the right direction. However, was not as much as we would have liked and was not as fast as we would have heard, however there was some improvement. In the area of maintenance capital expenditures, IMTT recorded a reduction versus the first quarter in 2013 of nearly $8 million. Maintenance CapEx this year was 11.1 million. While that has the appearance of being quite substantial, keep in mind that, the 2013 result was inflated with the activities following by Hurricane Sandy. There has been an increased level of engagement on the part of the second level of management of IMTT with respect to the evaluation and prioritization of maintenance CapEx needs. While it needs a lot more work, we appreciate that and we hope that it may lead to the implementation of genuine change in planning, analysis and policy with regard to maintenance CapEx overtime. With respect to operational expenses reduction, once again, the result is positive but the factors behind the numbers suggest less systemic focus and improvement than we would like. The decrease in SG&A is primarily the result of low legal and professional expenses in the current period relative to 2013 and IMTT did not incur certain uninsured healthcare costs that were part of the expense overruns in the fourth quarter of 2013. So again, moving in the right direction but we would prefer to see more enhanced purchases in systems behind the improved results. Growth CapEx is an area that has significant implications for IMTT long term not only there is a deployment of growth capital generate incremental revenue in EBITDA assuming it’s deployed into quality projects, but it can also provide an attractive tax yield something else that is quite valuable to IMTT at this time. There may be some things to the argument that the portion of the IMTT management team that would normally be focused on growth projects was distracted in 2013 by the issues related by Bayonne and Hurricane Sandy. That bandwidth issue has unfortunately not yet been address. On the positive side, in the absence of the Bayonne and clean-up effort, more of the management teams time was available to focus on new projects, while the number of new projects actually signed at this point was again fairly light only about $10 million worth of projects were in, the number and size of projects under discussion and evaluation is encouraging. We reiterate our previous commentary with respect that they today projects with a combined value of more than a $100 million under review. You all have noted the commentary on IMTT’s income taxes in our 10-Q. As a result of the better than anticipated results in the first quarter, we now forecast IMTT to have a current federal and state tax liability of approximately $46.5 million that includes $9 million in state liability. The roughly $37.5 million federal liability may be offset in part by the proposed extension of bonus depreciation. Although that has a number of hurdles to create before it becomes low or with an investment by IMTT and the project similar to our Contracted Power generation projects. As IMTT management is not familiar with the issues related to tax equity investments, they have appropriately so external advise on the matter. As a reminder, such investments must be made in the project that is operational by year end in order for it to deliver the intended benefit. Improvement in operating results contributed to a year-on-year increase in EBITDA of more than 21%, while the increase in tax is limited to the increase in free cash flow generated by IMTT to 24.5%. On the back of this result, the IMTT Board approved the distribution to each of the two shareholders of the business in the amount of $29.25 million which MIC has already received. Off that amount approximately $8 million was associated with re-levering of the business to 3.75 times net debt-to-EBITDA level required under the terms of the shareholders agreement. To sum it up, IMTT reported a solid quarter, a portion of the top-line improvement was the result of what I likely one-off events including tank heating revenue although expenses moved in the right direction. Atlantic Aviation, Atlantic Aviation results for the first quarter reflected ongoing improvement in the number of general Aviation fight movements in the U.S. together with effective on the ground management of variables including fuel margins. A portion of the improved operating performance was offset by the anticipated increase in interest expense that I referenced at the outset of my remarks. But overall, Atlantic Aviation continues to move in a very positive direction. The interest expense issue has to do with the unusually low rate that Atlantic Aviation was trying in the first quarter of 2013. The business had about $700 million of debt outstanding at an unhedged all in effective rate of approximately 1.93% for the first five months of last year. That translated into a cash interest expense of about $3.3 million for the first quarter of 2013. This year, the business has a lower debt balance about $515 million on its primary facilities, but is playing an interest at an all-in ineffective rate of approximately 4.76%, which is fully hedged for six years through May of 2019. That translated into cash interest expense of 6.2 million for the year. The good news is that, the growth in flight activity along with increases in volume and margin on fuel sales more than compensated for this temporary year-on-year increase incomparable interest rates. As reported by the FAA, General Aviation flight activity across the U.S. increased by 3.6% in the first quarter of 2014, compared with the first quarter of 2013. As always, I know that this information is typically directionally correct but may or may not correspond precisely with Atlantic Aviation’s actual results in any particular period. On a same-store basis, growth in gross profit was 8.6%. Keep in mind that the fluctuations in the price of Jet fuel are in general pass through to the consumer. As a result, gross profit is the factor for top-line for the business. This included effective management at the point of sale with average fuel margins again on a same-store basis rising by 2.7% in the quarter. Non-fuel margins grew at an even faster rate and the volume of fuel sold on a same-store basis grew by 3.8%. In terms of customer segments, gross profit was up in all segments and activity levels were up in all segments other than the fractional segment where the demand of on air and challenges of some of the second Tier fractional operators have seen the uplift and those customers transfer to other non-fractional operators. Happily, the fractional segment is our smallest and makes up a smaller portion of our business than it does for our key competitors. Conversely, our base tenants have been flowing their pens off well not literally. Once again, management in Atlantic Aviation did to good job keeping underlying expenses in check. The period-over-period increase you see in the Atlantic Aviation income statement reflects almost entirely two things. First, expenses incurred in connection with the Galaxy transactions and the Boca Aviation facility in particular in the quarter and second increases attributable to seasonal costs predominantly snow removal and increased utility expense. A number of people have asked about those seasonal costs and the weather effect on Atlantic Aviation. At Atlantic Aviation, the seasonal revenue growth is in the form of increased deicing activity and increased tenant rental with some owners and operators at some locations looked to more aircraft indoors during bad weather. The offset to this increase in revenue is generally in the cost of deicing fluid, snow removal costs and generally high utility costs. To put the snow removal effort into context at – the average cumulative snowfall for the year is around 20 inches. In the first quarter, we had to remove 75 inches of snow more than three times that amount. The team removed 75 inches of snow from a ramp that is about 500,000 square feet in area or 12.6 acres. That’s a lot of snow. Given the warm winter we had in 2014, I can report that while deicing gross profit was up $1.025 million, our utilities costs and snow removal costs were up $1.012 million. So, we made $13,000 in incremental EBITDA due to the seasonality this year at a 1.3% margin of gross profit-to-EBITDA the standard why we look at operating margins. To put in other way, we made a net $13,000 from this winter, assuming the winter was needed increase nor decrease the level of flight activity versus what otherwise have been. An enormous effort from all our staff did ensure we did not get backward over the winter. The most important driver of results at Atlantic Aviation remained flat activity. Also driving expenses in the quarter were approximately $1 million in legal, transactional and integration cost at Atlantic, predominantly related to the Galaxy and MKC transactions. The impact of this was positive at the EBITDA line in the first quarter. EBITDA increased by 11.2% versus the prior comparable period. Reduction in both the businesses tax provision and maintenance capital expenditures contributed to a 17.3% improvement in free cash flow for the quarter at Atlantic Aviation. We had expected that, we would close the Galaxy transactions during the first quarter although not until late in the quarter. As it turned out, we didn’t obtain the necessary airport authority consents until after quarter end. In fact, we’ve received the last written stopple that we record from the last airport on Monday of this week. As we’ve reported last evening in our earnings press release, we were able to close on those transactions yesterday. We remain very positive about the prospects for the FBOs for the part of the Galaxy transactions. Trading at Galaxy locations was good through the first quarter and the reaction from Atlantic Aviation’s existing customers to the announcement of the acquisitions has been exceptionally positive. We believe these facilities will have a noticeable impact on the result of the business in the next few quarters and the years to come. One of the important aspects of the Galaxy transactions has been the positive impact on Atlantic Aviation’s average remaining lease length overall. At the end of the first quarter, the average had been extended to 19.2 years from 18.8 years at this time last year as a result of certain lease extensions in Texas in mid-2013. With the additions of the Galaxy transaction leases, the average remaining lease life will be extended to over 19.7 years, that’s incredibly valuable and gives us considerable visibility into the cash generating capacity of this business. Trading across Atlantic Aviation portfolio through April including the Galaxy locations has been consistent with our expectations. So, Atlantic Aviation is off to a good start in 2014 and assuming continued stability and potentially growth in the broader economy, we envision another good year for the business. Hawaii Gas, at Hawaii Gas the average volume of gas sold in the utility and non-utility portions of the business declined in the first quarter of 2014, compared with the first quarter of 2013 by about 2%. The portion of the decline related to the non-utility result was a function of the continued instability and local supplies of LPG. The decline in the utility portion of the business appears to be a combination of lower tourist visits and the unanticipated shutdowns by several commercial customers. When we reported the full year 2013 results on the 20th of February, we felt we we’re over the hump in terms of LPG supply issues in Hawaii. Unfortunately, that was not the case. Local output of LPG decreased sharply into the end of the quarter. Indeed, output for one of the local refineries was down 38% versus the first quarter of 2013. As a result, Hawaii Gas was in the unfortunate position of having to suddenly source more than a normal amount of LPG from off-island sources. For the quarter, off-island sources totaled more than 70% of LPG purchases, up from 63% in the fourth quarter of 2013. Because of island shipments our necessary lumpy, customer inventories are typically lower in anticipation of those shipments in order to make room for the supply and flux. Of course, when inventory is full, that means revenues do as well and in particular quarter the supply chain process was compounded by the fact that the Mont Belvieu Index price for LPG was near an historic high as a result to the cold winter weather on the Mainland. To create the perfect storm, the peak in the Mont Belvieu index coincided with the sudden increase requirement for off-shore LPG. Wet rains in Hawaii it really pores. These matters combined produced non-utility contribution margin by 7.9% versus the prior comparable period. In response to these matters, Hawaii Gas portfolio price increased for selected customer segment. However, the business seems to make that it will take the better part of the remainder of the year to recover the contribution margin assuming a normalized Mont Belvieu pricing and supply environment. To attempt to avoid these sorts of problems in the future the management team at Hawaii Gas is a value adding various hedging strategies and continues to seek to explore opportunities to invest in local storage in Hawaii to smooth these irregularities. On the regulated side of the business and recall this portion of the business operates primarily in the more densely populated areas of Oahu. Volume decline appears to be a function of reduction in tourism and unanticipated shutdowns of certain businesses possibly also related to tourism. The Oahu Department of Business Economic Development & Tourism reports that visitors to the island declined by about 3.2% in the first quarter of 2014, compared with the first quarter of 2013. Obviously, there is no a neither level of declines experienced during the financial crisis, it does appear to be contributing factor in terms of the declining gas consumption. At least two hotels have been shut down for renovations, pool heating has been curtailed at some while the winter was severe in the Mainland, it was actually mild in Hawaii even by local standards. Outdoor food services have being discontinued at another hotel and unrelated to tourism a medical center has been shut down for renovation as well. In summary the long-term trends in Hawaii remain favorable for Hawaii Gas given the essential services nature of the business and the position it enjoys in the market. The first quarter result reflects an unfortunate coincidence of factors that our EBITDA drop by 4.6% in spite of lower overall costs and free cash flow dropped by 1.3 million on the combination of the softer performance and an increase in maintenance capital expenditures. The very positive highlight during the quarter in Hawaii was the receipt of approval from the Hawaii Public Utilities Commission to land containerized liquefy natural gas as a backup fuel to our Oahu SNG plant, making the Company the first to bring in LNG to the State. On April 2nd, Hawaii Gas received the first container shipment of LNG which was re-gasified and injected into the utility system without incident. We remained confident that this phase of Hawaii Gas’s LNG strategy will result in a demonstration of the important role that Hawaii Gas and LNG can play in the Hawaiian energy complex. Without volatility at the local refineries and the lower cost from LNG, our customers in Hawaii will see considerable benefit as we increase our LNG operations. The business will with our support continue to advance its case from moving on to Phase 2 of the strategy and an increase in the number of LNG containers moving to and from Hawaii and U.S. West Coast followed we expect by larger scale LNG solutions. We are comfortable that the step backward that Hawaii Gas took in the first quarter will be overcome during the remainder of the year. Contracted Power and Energy, recall, that with the full year 2013 results, we began reporting our District Energy and Contracted Power businesses, the solar operations in a combined segment. None of the businesses in the segment make the definition of a reportable segment separately and characterizing them as a group is a more accurate view of how we allocate capital to them. Reporting as a segment does reduce visibility into the performance of the components. However, so I will summarize the results in this fashion. District Energy performed as we expected given that it is a cooling business and demand is at the lowest point during this quarter. The group of five solar power generating facilities that are part of the segment also performed in line with expectations. Recall that, we have mentioned previously that we expect these facilities to generate an aggregate roughly 4.6 million in free cash flow for this year. In April, we and our co-investors in the District Energy business entered into an agreement to sell the business. The sale was conditioned on satisfaction of certain matters customary for a business of this size and type including the approval by the city of Chicago. Provided the conditions are met and the approvals are obtained we expect that the transaction will close in the late third quarter or early fourth quarter of this year. Given the sale timeline and immaterial impact on MIC as a whole, the terms will be disclosed on closing. We expect that the net proceeds from the sale would be available for reinvestment in businesses that form the Contracted Power and Energy segment including potentially an additional solar and renewal Contracted Power generation facilities. Related to that, I would note that the pipeline of such transactions remains good and I anticipate announcing additional investments before the next reporting period. Once again, I would characterize MIC’s underlying performance for the first quarter of 2014 is good. There was a bit of noise in the result all these explained and previously foreshadowed. But the fundamental drivers of continued good performance are intact. MIC’s largest businesses Atlantic Aviation and IMTT performed particularly well. Hawaii Gas experienced a softer quarter but not based on fundamental deterioration and made meaningful progress on the LNG front. And the businesses of MIC’s Contracted Power and Energy segment performed as we predicted they would. MIC remains on track if not slightly ahead of our guidance for the full year. As a result and consistent with our stated policy, the MIC Board has authorized a return of substantial majority of the improved performance to shareholders in the form of an increased dividend. The quarterly dividend is now 93.75 cents per share or $3.75 on an annualized basis. With that, I’ll thank you once again for your participation in our call and I ask that our operator to open the phone lines for your questions.

[Operator:]

(Operator Instructions). And our first questioner is Ian Zaffino of Oppenheimer. Please go ahead.

[Ian Zaffino:]

Hi. Great. Thank you very much on a good quarter.

[James Hooke:]

Thank you.

[Ian Zaffino:]

A couple of questions here. It seems like on the IMTT side that, you are making progress on the spending issues. What sort of the timeline here, when do you think that we’re going to reach sort of full resolution or at least just sort of get the spending in line with where the comps are? And how long does that take? It seem like we are getting no – you don’t need any draconian measures to get there, that’s the sense I got, but just give us a little more color as far as the timeline.

[James Hooke:]

Yes. It’s a good question and to some extent it’s how long is a piece of string or how long is piece of elastic questions? I think what I want to emphasize coming out of this quarter is, we did move in the right direction, the numbers however, the improvement that you show numerically may be a little flattering in terms of the progress that was made. We are still pushing hard for enhancements to processes and systems. Some of those enhancements are being introduced at an embryonic level and so there are sort of tiding introductions to those as you sort of improve them. But, I also want to be clear, we haven’t seen anywhere near enough improvement versus where our expectation is. So, we are in the you know I guess with horns of Limo [ph] which is as long as we are moving in the right direction and if we form the conclusion that moving in the right direction, the speed of that can accelerate over the next couple of quarters and we won’t need to I guess you use the price tag for draconian measures and if the speed doesn’t accelerate and the trajectory doesn’t continue, we’ll need to review that.

[Ian Zaffino:]

Okay. Now as far as just staying on IMTT for a second, and I know you are emphasizing the whole legislation as a means of reducing the tax burden. I know in the past you’ve talked about sort of these tax equity deals and partnerships and also may be just ramping up the growth pipeline and new project pipeline. Does this mean you are not sort of relying on the legislation or are you still moving forward on the flip equity partnerships? Just talk about your priorities there.

[James Hooke:]

Yes. So, if we go through those three buckets that you talk through, the legislation is beyond their control and so I wouldn’t say we are relying on it. I think the good news about the legislation is, the drop legislation that extends bonus depreciation for 2014 and 2015 has passed the center. It’s through the center, it just requires the house and then the President’s approval, but it’s sort of already there and it’s on the table not just for this year, it’s this year and next year. So in one sense that’s a form of a better tune that’s almost like found money or found benefit, because if it happens, there is nothing we have to do and we get a benefit from it. The fundamental tactic or probably the optimal tactic remains investment in a tax flip opportunity or similar structure for 2014. And the reason that’s the highest priority in my mind is, that’s something within our control but doesn’t require a legislative amendment and so that’s something that we are pushing IMTT to do. And I’d say, they have done some I’ve done some work during the first quarter and looked at it and they’ve got a lot more information about it and so there has been progress on that front in terms of their understanding of it. So, those are probably the two priorities for 2014. In terms of growth CapEx, yes, that’s an important tax shield. I don’t think it’s really or likely leave that one can pull in 2014 because I think the lead time those projects need to be online to get the bonus depreciation in ‘14 or to get the depreciation shield in ‘14. It’s not a matter of the sort of you can get it on the work in progress. So the growth CapEx is what I would call the medium term best leave it a pool, the tax equity investment pool. To be clear, whether they do it in a solar project with us or renewal project with someone else provide the sponsor equity, I am totally in different to. I just want the deal to be done and we’ve made that clear to them as well. And then bonus depreciation if the house passes that legislation, our view is for one of the better term found money but it’s not a strategy.

[Ian Zaffino:]

Okay. And on the dividend strategy and sort of what you think about it and I know you said that dividend is going to increase with the increases in cash flow. Can you give us a little bit more kind of definitive details on that? Are you talking about a free cash flow increase over the course of a year and then you’re going to wait for that year? It seems actually that we are moving actually closer to more regular or just quarterly dividends? And if that’s a case, quarterly free cash flow do move up and down and I am just wondering how you think about that and how you sort of smooth for that and when we should expect our dividends going forward?

[James Hooke:]

Ian, it’s very good question. You put me on one of those life threatening or should I say shin threatening situations where Jay who is the head of our investor relations gets that look on his face as if he is about to kick me under the table. So, let me trade carefully here because I know it’s an issue of an importance to shareholders and he hear me scream all the phone go mute you know that Jay has intervened. We hear from our shareholders and they would prefer more frequent less large increases in distributions and we said we hear that. We have increased the dividend this quarter, having just increased it last year because we saw good free cash flow growth. If we continue to see free cash flow growth going forward as and when we see it we’ll review that and I guess we hear what shareholder preference is, but we are not changing out, we are not giving express guidance as to you should expect something every quarter but we’re also ruling that out. We’ll do whatever is appropriate for the business. I think the other thing which is more of thought bubble, which is at this pointing time the way we are thinking of the issue is around a dividend that would be the same amount each month or each quarter not a dividend that sort of was x one quarter lower than next a free cash flow dropped over the next. We think there would be some smoothness, because you know sustainability of this becomes important and the sustainability is valued over the long-term. So, the dividend remains a good topic of conversation of the Board. They are fully cognizant of shareholder desire on this and I suspect each approval, each quarter remains subject to Board review.

[Ian Zaffino:]

Okay. Thanks. And just one final question and this is probably to get Jay heart attack. Jay you know if you look at your guidance, can I then take this $0.19 of taxes the other 7% for Galaxy not closing yet to kind of pro forma of the year so basically add call it $0.26, $0.27 to this year’s guidance? And then as you look at the next year I could assume sort of that 10% growth rate?

[James Hooke:]

I like the concept of giving heart attack. So, I attempted to say yes, yes, yes, yes. Understand the reasoning and the methodology, the math all works out but it’s way too early in the year for us to even think about it, hinting a 2015 and a part through it. But I think look the underlying thing, the points about which is when Galaxy comes online that definitely increases the run rate free cash flows if the business is on and we would hope to grow Galaxy and grow that run rate free cash flow faster. The benefit of the tax shield from the bonus depreciation definitely provides an incremental lift and if that legislation passes, it would provide an incremental lift in 2015 as well. And then the free cash flow growth that we wish the teams at each of the businesses to deliver until moral improves. That is we got projects underway and things we’re working on there. And so, I think the framework and that you’ve articulated in terms of how we’re thinking through the issue is exactly the same. We just yet not prepared to put numbers to them.

[Ian Zaffino:]

Thanks so much.

[James Hooke:]

Okay. Thanks.

[Operator:]

(Operator Instructions). I am showing no questions at this time and would like to turn the conference back for any further remarks.

[James Hooke:]

Thank you very much. Let me thank all of our shareholders for their continued confidence in our ability to deliver additional value for MIC. We look forward to providing you with an update on our results for the second quarter in late July. And as always, please feel free to contact us with any suggestion or questions you have along the way. I want to thank teams of all of businesses who put in a good effort during the quarter to deliver the results we have. I want to thank our suppliers specially our lenders who are important partners of our as we continue to grow our business. And at the end of each call, I do call out to someone. I would like to do call out on especially grateful to Joe Fazio and team, who effectively moved 75 inches of snow over 500,000 square feet of surface area which was a superhuman feet from a superhuman group of people. Thank you and enjoy the rest of your day.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s presentation. This does conclude the meeting and you may all disconnect.