MIC ups Q2 gross profit, bottom line takes hit

Macquarie Infrastructure was able to raise its quarterly cash dividend 16.8% in Q2 despite higher costs that chipped away at growing revenues and gross profit.

New York-based Macquarie Infrastructure Corporation (MIC) posted what it called strong results for the second quarter of 2015, increasing consolidated revenues and doubling gross profit but at the same time reporting a net loss due to higher costs, according to a statement.

The wholly-owned subsidiary of Australia’s Macquarie Group increased its quarterly cash dividend by 16.8 percent compared with the second quarter of 2014 to $1.11 per share.

“Consistent with our stated objectives, we are returning a substantial portion of the cash generated by our businesses to shareholders in the form of a cash dividend again this quarter,” MIC chief executive James Hooke said. “We remain confident in our ability to deliver year on year growth in our dividend of 14 percent in each of 2015 and 2016,” he added.

While MIC’s consolidated revenue rose 50.8 percent year-on-year in the second quarter to $423.7 million and gross profit doubled to $230.0 million from $114.8 million in the same period last year, the company reported a net loss, before tax, of $97.0 million compared with net income of $15.2 million in the second quarter of 2014.

Increased fees payable to MIC’s manager, Macquarie Infrastructure Management, which amounted to $154.6 million, as well as other costs reflect primarily the selling, general and administrative expenses of the businesses acquired by MIC during the past year, the company said. These costs include approximately $9.1 million in transaction expenses related to the Bayonne Energy Centre (BEC), which MIC acquired in April 2015, as well as costs associated with the conversion of the company from a limited liability company to a corporation.

However, proportionately combined free cash flow, which MIC considers an important tool in assessing its businesses, increased 46 percent to $1.46 per share. This is excluding the impact of expenses incurred in connection with MIC’s refinancing of marine terminal operator International-Matex Tank Terminals (IMTT) and the acquisition of BEC.

“The combination of large amounts of depreciation and amortization attributable to our operating entities, all non-cash expenses, together with the expensive base in performance fees, generally results in a net loss for GAAP accounting purposes,” Hooke said on a conference call on Tuesday. “To be clear, we manage our businesses to free cash flow generation not GAAP earnings,” he added.

According to Macquarie, the continued strong performance of IMTT and Atlantic Aviation, its airports services business, contributed to the increase in adjusted proportionately combined free cash flow.

In the case of IMTT, the marine terminal operator cut its maintenance capital expenditure by 60.0 percent, “primarily as a result of the implementation of more stringent project review and approval processes,” according to the statement.

As for Atlantic Aviation, the company improved cash generation by over 23.4 percent in the quarter ended June 30. The continued improvement in the US economy also helped Atlantic Aviation’s performance, MIC said.

Macquarie Infrastructure’s Contracted Power and Energy segment – which at the end of the second quarter, comprised controlling interests in five solar power generating facilities in the US’ Southwest, two wind farms (in New Mexico and Idaho), and a 100 percent interest in BEC – underperformed relative to MIC’s revenue expectations.

“Solar and wind resources were below historical norms as a result of unusual weather patterns across the regions in which those facilities are located,” MIC explained in the statement. “The performance of the gas-fired facility was modestly below expectations as a result of lower transmission congestion credits and lower capacity payments,” it added.

Hawaii Gas, the only regulated gas processing and pipeline distribution network on the islands of Hawaii, saw its gross profit rise 1.3 percent in the second quarter primarily due to growth in commercial consumption and the addition of new commercial customers. Its free cash flow increased 60.1 percent, a result MIC attributed primarily to improved operating results as well as reductions in income taxes and maintenance capital expenditures.

“Clearly, MIC is performing ahead of expectations with results – with respect to generation of free cash flow,” Hooke said during the conference call. “We expect to deliver a full year of 2015 results substantially ahead of 2014 on a per-share basis. Among the things that could drive free cash flow growth at faster rates in 2016 is our capacity to deploy capital,” he said.