Osisko Gold Royalties Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2023

There are 3 speakers on the call.

Operator

Good morning, and thank you for standing by. Welcome to the Second Quarter 2023 FTAI Infrastructure Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Andreini, Head of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Michelle. I would like to welcome you all to the FTAI Infrastructure's Q2 2023 earnings call. Joining me here today are Ken Nicholson, the CEO of FTAI Infrastructure and Scott Christopher, the company's CFO. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen only mode and is being webcast.

Speaker 1

In addition, Certain statements made today will be forward looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Ken. Thank you, Alan, and good morning, everyone.

Speaker 1

Before we get to the financials, I'm pleased to report that we will be paying our 4th dividend is a standalone company with our Board authorizing a $0.03 per share quarterly dividend to be paid on August 15 to the holders of record on August 8. Now on to the financial results. Adjusted EBITDA for the 2nd quarter came in at $36,200,000 prior to corporate expenses, up 20% sequentially from $30,100,000 in the Q1 of 2023 and representing a record result for our company. 3 of our 4 business segments posted growth quarter over quarter, while our Long Ridge Power and Gas business Continue to generate double digit EBITDA, just slightly softer than Q1 as lower gas prices meant we slowed down sales of gas into the 3rd party market. More importantly, during the quarter, we made good progress on a number of new initiatives and growth projects.

Speaker 1

So we expect to continue to experience growth in the second half 2023 and the years ahead. Based on these initiatives, we continue to target reaching a run rate of $200,000,000 of annual adjusted EBITDA from our segments by the end of 2023 with no additional capital required to meet that target. In terms of the highlights at each segment, Transfer had a great quarter with adjusted EBITDA coming in at $20,300,000 up 18% from Q1 of this year. At Jefferson, while adjusted EBITDA for the quarter was also a new record, we're even more excited about a number of new business wins we secured during Q2 and are confident we will begin to post Double digit EBITDA in Q3 and beyond. At Repauno, while the financial results reflect an adjusted EBITDA loss, This loss was largely a result of the startup of operations under our new multiyear tolling contract experienced in the early parts of the quarter And we're entering Q3 now generating positive adjusted EBITDA.

Speaker 1

And finally, at Long Ridge, normal operations continued and we reported $10,400,000 of adjusted EBITDA. All in, a very strong quarter setting the stage for continued growth. Briefly on the balance sheet. We ended the quarter with $42,500,000 of cash. In the aggregate, we had $1,300,000,000 of debt shown on the balance sheet at June 30.

Speaker 1

Shortly after the quarter end, in July, we issued $100,000,000 of additional debt through an add on to our existing senior secured notes. Proceeds from the issuance were used to repay approximately $75,000,000 of existing debt, Including our $50,000,000 revolver at TranStar, so pro form a for the issuance, total debt on our balance sheet increased only slightly by $25,000,000 from the June 30 balances that are reflected in the earnings supplement and in our 10 Q. Importantly, TranStar is now completely debt free, Meaning all cash generated at the business can be distributed up to 5th with no limits or restrictions. I'll spend a few minutes providing more details on each of our segments and then plan to turn it over for questions. I'll start with TranStar on Slide 7 of the supplement.

Speaker 1

Tramstar posted revenue of $42,500,000 and adjusted EBITDA of $20,300,000 in Q2, up from revenue of $41,000,000 and adjusted EBITDA of $17,200,000 in Q1. Both carload volumes and average rate per carload were Higher for the quarter as U. S. Steel production at the Gary, Indiana and Pittsburgh, Pennsylvania facilities continued at normal levels. Away from U.

Speaker 1

S. Steel, we also continue to make very good progress on multiple initiatives at TransStar to drive incremental third party revenue and EBITDA. We expect these programs to represent approximately $30,000,000 of incremental EBITDA opportunities annually with no additional investment. Now on to Jefferson. Jefferson generated $17,100,000 of revenue $7,100,000 of adjusted EBITDA in Q2 Compared to $19,100,000 of revenue and $6,500,000 of EBITDA in Q1.

Speaker 1

I'll take a minute to discuss the makeup of the P and L for the quarter, which showed a shift To increase volumes of refined products versus crude oil. Transloading rates for refined products are typically lower on a per barrel basis for Given that the process involves no heating or blending as crude often does. But refined products can also generate a higher margin since the operating costs associated with refined products are quite low. For Q2, you'll see we posted lower revenue due to this dynamic, but continued the pace of EBITDA due to lower operating expenses. More importantly, at the end of the second quarter, we completed commissioning and started operations at our new ship dock, which doubles Jefferson's Ship handling capacity represents the final component of Jefferson's full build out at the main terminal.

Speaker 1

The new ship clears the path the new ship dock clears The path for refinery customers to now fully utilize Jefferson storage and transloading capabilities, and we expect substantial increases in volumes entering the second half of the year. On the new business front, we recently secured 2 new contracts at Jefferson. The first, which is at the main terminal, Involves the handling of storage handling and storage of naphtha for a large trading firm that commences immediately and should more than offset the reduced crude oil volumes we saw during Q2. The second contract, which is materially more meaningful, is at our newly acquired Jefferson South site, where we secured a new 15 year contract for the transloading and export of hydrogen based clean fuels commencing in 2025. Together, these two contracts are expected to generate in excess of $10,000,000 of annual EBITDA and potentially materially more.

Speaker 1

We expect to enter into additional contracts for the handling of clean fuels in the coming months as new developments in the Beaumont Moving to Repauno, we commenced our multiyear contract to Transflo Natural Gas Liquids using our Phase 1 system in Q2. The contract with 1 of the world's leading trading companies has minimum volume commitments and does not expose Repaunter to commodity prices. We did experience some initial start up costs that resulted in small adjusted EBITDA loss in Q2. But as I mentioned, those should be behind us And we're generating positive EBITDA going forward. With Phase 1 having commenced, Repauno is now focused on securing business for our larger Phase 2 transloading system.

Speaker 1

As detailed on Slide 9 of the supplement, our Phase 2 system is expected to materially increase our storage and throughput capacity when it comes online in 2 years. In the aggregate, we expect Phase 2 to cost approximately $200,000,000 to build and to generate in excess of $40,000,000 of annual EBITDA once complete. We have demand for multiple international off takers and our goal is to enter into long term agreements with multiple parties in the coming months. Finally, moving on to Long Ridge. Long Ridge generated $10,400,000 in EBITDA in Q2 versus $11,300,000 in Q1.

Speaker 1

Power plant operations were steady, while gas production was managed down during the quarter in the currently lower gas pricing environment. At gas prices of under $1.50 per MMBtu, our profit on third party sales is less impactful. So we have deliberately limited production to volumes needed volumes needed solely to fuel the power plant and opted to keep excess gas in the ground in anticipation of higher gas prices, which are typical as we enter the fall and early winter. At Long Ridge, we continue to progress a number of initiatives. In the near term, we're Final approvals in the coming months for the upgrade of the power plant to 505 Megawatts, an increase of 20 Megawatts from our current generation capacity.

Speaker 1

That will contribute incremental EBITDA in the range of $5,000,000 to $10,000,000 annually based upon current forward curves for the price of power. Over the longer term, we are seeing increased interest from behind the meter Including data center developers and companies focused on energy transition opportunities. To wrap up, we're pleased with our first half of twenty twenty three and excited about the things to come in the next half of the year. With that, let me turn the call back to Alan. Thank you, Ken.

Speaker 1

Michelle, you may now open the call to Q and A.

Operator

Our first question comes from Giuliano Bologna with Compass Point, your line is open.

Speaker 2

Good morning. Thanks for taking my questions. Starting off, I think here's from a high level. Sequentially, on a quarter basis, Consolidated EBITDA was up 26%. I'm curious if you're expecting similar increases in 3Q and 4Q or throughout the balance of 23?

Speaker 1

Yes, we are. Yes, we're as our businesses continue to ramp up, thanks Giuliano, by the way, We do we are expecting to maintain 20% EBITDA growth from the segments and closer to 25% After corporate expense. I think the only potential blip in that is from time to time we have Scheduled maintenance at the Long Ridge power plant and so that may affect a month's worth of cash So out of Long Ridge in any particular quarter depending upon when that month falls. I do think we have a scheduled maintenance event Coming up later this year, whether that falls in the month of September or the month of October will ultimately drive what Long Ridge ends up doing in that particular quarter. But outside of that, yes, that's the pace of growth we're anticipating to continue.

Speaker 2

That's great. And I was going on an asset by asset basis. Starting off with Tramstar, I'm curious if there's any third party contribution in the $20,300,000 that you reported in the second quarter?

Speaker 1

Yes, I'd say about directionally about 10% of that EBITDA is attributable to third parties. Obviously, our goal is to continue to increase that and diversify the revenue stream. I think we've got a lot of things going on that are going to enable us to do that as we Entering the second half of the year and turn into next year. I'm excited about it. I think there are a number of different initiatives That will drive EBITDA growth and also diversify the EBITDA.

Speaker 2

That sounds good. And then next, can Can you give us a little bit more detail around the $30,000,000 of incremental EBITDA trends around the timing around when that could start to flow through or I guess, pardon, it's starting to flow through, but the balance of the 30,000,000

Speaker 1

Yes, yes. The vast majority is attributable to third party business. We have a number of New developments coming online in the coming months, very large railcar repair and maintenance facility in Pittsburgh, Which is progressing really nicely. I was in Pittsburgh just about a month ago and saw the progress that's going to be a big deal for the Union Railroad, TransSource Union Railroad in Pittsburgh. We have a new Translood facility.

Speaker 1

We're tripling the size of the Translood Facility in the Detroit area and that's coming along great. I would say of the $30,000,000 it's safe to say $15,000,000 to $20,000,000 is in a very, very good place. It's I wouldn't say it's entirely 100% in the bag, but it's coming along very well. I'm highly confident in $15,000,000 to $20,000,000 of the $30,000,000 I think the remaining $10,000,000 or so is for us And the TransStar management team to go get, but I think that's very achievable given the assets that we have and all the activity around us. So Feel very good about where TransStar is today.

Speaker 1

We had a very good second quarter. I think we'll continue to have strong 3rd and 4th quarters And slowly chip away at that $30,000,000 in the couple of quarters ahead.

Speaker 2

That's great. And then, for a slightly different I'm curious, what you think the ultimate potential is for trends are over time?

Speaker 1

Well, I mean the potential could be significant with acquisitions and additional investment. Without additional investment, Given the capacity and the leverage ability of the existing rail systems, I'd say it's plus or minus 150 I think the potential for the assets in place over the next couple of years, 2 to 3 years With no material incremental investment, it probably reaches about $150,000,000 of EBITDA. That's our longer term project for The collection of railroads at FranStar. Obviously, the goal is to exceed that with new investments and we're always looking at new opportunities. But I think Over the next 2 to 3 years, our longer term plan is to hit a $150,000,000 number plus or minus.

Speaker 2

That's great. Thank you. And then shifting over to Jefferson, where do you see the near term growth in EBITDA coming from that will get you to that $10,000,000 plus Our $10,000,000 or greater quarterly EBITDA run rate starting in the Q3.

Speaker 1

Yes. I mean, I really think we're largely there as we're now almost 1 month Into the Q3, in terms of the double digit EBITDA. I think the biggest development obviously, we have a couple of new contracts that Our super, one is commencing immediately, and so that's going to have an immediate impact. But really from an infrastructure standpoint, it was the completion of the 2nd ship dock. Remember at Jefferson, we now have 3 docks and dock space for Energy Terminals is it's like the front door to the house and you can only manage so much volume, if you have constraints at your docks.

Speaker 1

We completed DOC 2. We had been operating with DOC 1 and DOC 3. We completed DOC 2 at the end of June. And so that was the bottleneck to the entire 6,000,000 barrel logistical system. And now that that is operating, I think that's going to be a big sort of contributor to additional volume and additional EBITDA growth.

Speaker 1

I think it's going to come from refined products, primarily. I don't I think crude oil is continuing to come out of the Uinta Basin and we'll continue to see a steady flow of Uinta Basin crudes. Canadian crudes tend to be more volatile. I think the real growth over the next 3 to 6 months for Jefferson as we start to post double digit EBITDA Really be through the refined products, which again will be lower revenue as we saw in the Q2, but higher EBITDA.

Speaker 2

Sounds good. Then related to the new 15 year contract, the Jefferson South project, can you tell me a little more about The CapEx for that project and also kind of EBITDA contribution around that?

Speaker 1

Yes. I mean, we're particularly excited about that contract. That is Really the first major hydrogen based fuel transloading contract that I'm aware of in the entire Beaumont Port Arthur market, and we secured the business. The it is at our Jefferson South Terminal, which is a different piece of land located across the river. That was, if you recall, a Terminal we purchased last year and we have been developing and there's a lot To do, I very much believe that this first contract is the first of many that will be particularly focused on clean fuels.

Speaker 1

When we purchased that site, it had an existing dock. In order to handle this contract, that dock needs to be refurbished. We estimate that will be between $30,000,000 $40,000,000 of expenditure, that will be required to refurbish the dock in order to start the business. It's not terribly significant and the economic returns are very compelling, particularly given it's a 15 year contract. By the way, that contract is Not just long term, but it also contains minimum volume commitments from the counterparty.

Speaker 1

And so 15 years minimum volumes Locking in what will ultimately become double digit EBITDA on a $30,000,000 to $40,000,000 investment is something we really like.

Speaker 2

That's great. Then shifting over to Ruffano, how close are you getting approval on the caverns? And also how close are you securing these contracts to reach FID for Phase 2?

Speaker 1

It is Those two projects that you just mentioned are now really our sole priority at Repauno. I think we're about at some point over the next 3 months, I think we'll have the permits in hand for the caverns, and I think we'll have contracts in place for Phase 2. We're very close. It's very active engagement with the permitting agencies and counterparties. Would like to have had it all done by now, but we don't control the timing of these things.

Speaker 1

And so very, very close. Our goal is to have this stuff all done in the next 3 months.

Speaker 2

Sounds good. And then thinking about the power plant at Long Ridge, obviously gas sales are the primary Source of volatility there in the quarter, but I'd be curious at what price do you see natural at what price would you need to see natural gas before turning on gas sales again?

Speaker 1

Yes. I mean, our underlying prices today are anywhere from $1.30 to 1 point 50 and MMBtu, those are market prices in our region. We produce gas ourselves at slightly less So theoretically, it would be profitable to produce excess gas and sell into the 3rd party market. It just wouldn't be much in the way of profits. And we sort of have made the decision that in this environment, we will produce less And bank the gas in the ground, knowing that it is highly likely in the late fall and early winter that gas prices will go up.

Speaker 1

Of course, no one really knows precisely what will happen to gas prices. But I would tell Generally, we would target roughly $2 an MMBtu, maybe a little bit less. Prices creep up to $1.80 We'd start turning back on gas production, and north of $2 for sure, we would start producing excess gas again and selling into the market.

Speaker 2

Perfect. Then thinking about more of a general question. I think you're seeing the The $50,000,000 quarter or $200,000,000 run rate quarter, by components to provide a sense of where the growth contribution Did you confirm to get to that $200,000,000 run rate that you're targeting by the end of 2023?

Speaker 1

Sure. Yes. Maybe just go through it for each of the 4 segments and then deduct Some corporate expense and added up that way. I mean, TransStar, I really think in the next two quarters should be running at $25,000,000 of EBITDA. Certainly, as we swing into next year Out of 'twenty three and into 'twenty four, we should be pushing up against $25,000,000 of EBITDA.

Speaker 1

So that's the number of Tramstar. Jefferson, high teens, Call it $17,000,000 $18,000,000 at Jefferson at the end of Q4. I feel pretty comfortable with that target. Repauno will continue to be small until Phase 2 kicks in. Repauno will be $2,000,000 to 3,000,000 Of EBITDA and Long Ridge should continue to be steady and producing EBITDA of about $12,000,000 for us.

Speaker 1

So add all that up, Deduct what will probably then at the end of the year be closer to $7,000,000 of corporate expense, maybe $8,000,000 But add up the I think you said 25%, 18%, 3% -ish, 12% and deduct 8% and you should get pretty close to the 50

Speaker 2

That's great. Thanks for that. And one last one. I'm curious to know what the current M and A environment looks like for you, you guys?

Speaker 1

Yes. We It's a great question. We're definitely seeing increased activity. Obviously, we're going to continue to be very disciplined, But I do feel like with the momentum at TranStar and our terminals businesses really maturing And the teams of professionals we put in place both at the railroad and at the terminals business, we are A very capable buyer of additional businesses and assets in those two spaces. Yes, we're reviewing a lot.

Speaker 1

I would say it's been now 12 months that FIP has been an independent Public company and we are definitely as busy as we have been in that 12 month period looking at investment opportunities. So I'm hopeful we'll see something in the next Few quarters based on all this activity, but you never know. And as I said, we'll continue to be very disciplined. But I definitely think the M and A market, which was admittedly quite slow Late last year and into early this year has been coming back, and we're seeing more and more opportunities for sure.

Speaker 2

That's great. I really appreciate the time and answering all my questions. I'll jump back in the queue. Thank you.

Operator

I show no further questions at this time. I would now like to turn the call back to Alan for closing remarks.

Speaker 1

Thank you, Michelle, and thank you all for participating in today's call. We look forward to updating you after Q3.

Remove Ads
Powered by Quartr
Earnings Conference Call
Osisko Gold Royalties Q2 2023
00:00 / 00:00
Remove Ads