MIC Overview of the MIC Hawaii Segment May 2017 1 1. The contents of this presentation reflect financial and operating information through the period ended March 31, 2017, as reported on the Company s Form 10-Q which was filed with the Securities and Exchange Commission on May 3, 2017.
Important Notice This presentation provides a summary of the MIC Hawaii reporting segment of Macquarie Infrastructure Corporation (MIC). The purpose of this presentation is to provide external parties, including current and prospective investors and research analysts, an overview of MIC Hawaii and its key operating characteristics. For a complete discussion of MIC Hawaii s operations, actual results, performance, prospects, opportunities, and risks, this presentation should be read in conjunction with the Company s Form 10-Q, filed on May 3, 2017, and other materials filed with the SEC subsequently. This presentation by Macquarie Infrastructure Corporation (MIC) is proprietary and all rights are reserved. Any reproduction, in whole or in part, without the prior written consent of MIC 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 informational purposes, it is not a solicitation of any offer to buy or sell any security or instrument. This presentation contains forward-looking statements. Forward-looking statements in this presentation are subject to a number of risks and uncertainties, some of which are beyond our control. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. A description of known risks that could cause our actual results to differ appears under the caption Risk Factors in our Form 10-K filed with the SEC on February 21, 2017 and other materials filed with the SEC subsequently. Additional risks of which we are not currently aware could also cause our actual results to differ. 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 whether as a result of new information, future events or otherwise, except as required by law. Macquarie Group consists of Macquarie Group Limited and its worldwide subsidiaries and affiliates. MIC is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MIC. Use of Non-GAAP Metrics In addition to our results under U.S. GAAP, we use certain non-gaap measures to assess the performance and prospects of our businesses. In particular, we use EBITDA excluding non-cash items, Free Cash Flow and certain proportionately combined financial metrics. Proportionately combined financial metrics reflect MIC Corporate and our ownership interest in each of our businesses. We define EBITDA excluding non-cash items as net income (loss) or earnings the most comparable GAAP measure before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense reflected in the statements of operations. EBITDA excluding non-cash items also excludes base management fees and performance fees, if any, whether paid in cash or stock. We define Free Cash Flow as cash from operating activities the most comparable GAAP measure which includes cash paid for interest, taxes and pension contributions, less maintenance capital expenditures, which includes principal repayments on capital lease obligations used to fund maintenance capital expenditures, and excludes changes in working capital. Please review our Form 10-Q and press release, filed on May 3, 2017, for a complete discussion of our use of non-gaap metrics. PAGE 2
MIC Hawaii Business Overview MIC Hawaii focuses on providing low cost, clean, efficient energy to customers in Hawaii Comprises Hawaii Gas and other smaller business engaged in serving the Hawaiian energy complex Hawaii Gas comprises of a regulated gas utility and an unregulated liquefied petroleum gas (LPG) distribution business Operates the state s only government franchised gas utility Processes and distributes gas to customers across Hawaii s six main islands Solar facilities, located on Oahu, were placed into service in 2016 Critchfield Pacific, a design-build mechanical contractor, acquired in 2016 Net Income 1 Key Statistics $31.5 million Kauai Utility and Non-Utility Geographic Footprint EBITDA excluding non-cash items 1 Cash from Operations 1 $64.7 million $45.5 million Oahu Headquarters SNG Manufacturing Plant Utility and Non-Utility Solar Facilities Molokai & Lanai Utility and Non-Utility Free Cash Flow 1 $40.4 million Net Debt/EBITDA excluding non-cash items 1,2 2.8x Solar Hawaii Utility and Non-Utility 1. For the twelve months ended March 31, 2017. EBITDA excluding non-cash items and Free Cash Flow are non-gaap measures. See pages 7 and 8 for reconciliation. 2. Reflects Debt and EBITDA excluding non-cash items associated with Hawaii Gas only. PAGE 3
MIC Hawaii Hawaii Gas Utility Processes and distributes synthetic natural gas, liquefied natural gas, and liquefied petroleum gas Operates the only SNG processing plant in Hawaii Serves primarily Oahu Products distributed via pipeline Regulated by the Hawaii Public Utilities Commission Fuel cost pass through mechanism Last rate case approved in 2009 Non-Utility Distributes liquefied petroleum gas Sources LPG supply from off-island producers and a local refinery Majority of customers located on islands other than Oahu Product is distributed primarily by truck and via centralized cylinder exchange Manages LPG costs with a hedging program running through 2019 Product Overview Synthetic Natural Gas (SNG): Converts naphtha into SNG SNG is similar in chemical composition and heating value to natural gas Liquefied Natural Gas (LNG): Utilizes cryogenic containers to transport LNG to Hawaii as a backup fuel for the SNG utility distribution system In April 2016, received regulatory approval to invest $12.8 million to replace up to 30% of SNG gas demand with containerized LNG Liquefied Petroleum Gas (LPG): A generic name for a mixture of hydrocarbon gasses, typically propane and butane Residential and commercial applications are similar to that of SNG and LNG Renewable Natural Gas (RNG): Engaged in initiatives to develop RNG In August 2016, awarded a contract to off-take biogas from Honolulu s wastewater treatment facility PAGE 4
MIC Hawaii Hawaii Gas Fundamentals Stable financial performance supported by favorable economic, business characteristics Stable results have been supported by: Regulatory framework permitting pass through of fuel costs in the utility segment A focus on margin and contract management at the unregulated segment A portion of non-utility segment volumes are contracted for multi-year periods which reduces customer churn Long term volume growth linked to: Tourism Population growth (including military) Government spending New construction Share shift from electricity to gas 2016 visitor arrivals grew an estimated 3.0% y/y, reaching an all-time record level 1 State unemployment has consistently remained below the national average Weather has a minimal impact on overall demand (e.g. minimal heating demand) Therms (Indexed to 100) 105 100 95 90 85 80 75 70 65 60 Gas Volumes 2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1. As reported by the Hawaii Department of Business, Economic Development, and Tourism. 2. Reflects utility and non-utility volumes PAGE 5
MIC Hawaii Growth Capital Expenditures MIC Hawaii has invested more than $90 million in growth projects, acquisitions since 2006 1 Recently approved investments include: Replacement of 30% of naphtha feedstock for Hawaii Gas s SNG plant with LNG Pipeline construction for biogas off-take from Honolulu wastewater treatment facility Additional investments in Hawaii include: Waihonu solar facilities, comprising 7MW of generating capacity Acquisition of Critchfield Pacific, a design build mechanical contractor focused on energy efficiency Evaluating opportunities to develop a scalable state-wide LNG import, storage, and distribution program to supply multiple end markets 1. As of December 31, 2016. PAGE 6
Non-GAAP Reconciliations For the Quarter ended March 31, 2017 and March 31, 2016 Quarter Ended March 31, Change 2017 2016 Favorable/(Unfavorable) $ $ $ % ($ In Thousands) (Unaudited) Product revenue 59,583 53,967 5,616 10.4 Service revenue 13,457-13,457 NM Total revenue 73,040 53,967 19,073 35.3 Cost of product sales (exclusive of depreciation and amortization of intangibles shown separately below) 42,366 28,703 (13,663) (47.6) Cost of services (exclusive of depreciation and amortization of intangibles shown separately below) 10,940 - (10,940) NM Cost of revenue total 53,306 28,703 (24,603) (85.7) Gross margin 19,734 25,264 (5,530) (21.9) Selling, general and administrative expenses 6,085 5,256 (829) (15.8) Depreciation and amortization 3,481 2,350 (1,131) (48.1) Operating income 10,168 17,658 (7,490) (42.4) Interest expense, net (1) (1,711) (2,424) 713 29.4 Other expense, net (205) (254) 49 19.3 Provision for income taxes (3,379) (5,911) 2,532 42.8 Net income (2) 4,873 9,069 (4,196) (46.3) Less: net loss attributable to noncontrolling interests (28) - 28 NM Net income attributable to MIC (2) 4,901 9,069 (4,168) (46.0) Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow: Net income (2) 4,873 9,069 Interest expense, net (1) 1,711 2,424 Provision for income taxes 3,379 5,911 Depreciation and amortization 3,481 2,350 Pension expense (3) 273 350 Other non-cash expense (income), net (4) 5,571 (2,752) EBITDA excluding non-cash items 19,288 17,352 1,936 11.2 EBITDA excluding non-cash items 19,288 17,352 Interest expense, net (1) (1,711) (2,424) Adjustments to derivative instruments recorded in interest expense (1) (226) 119 Amortization of debt financing costs (1) 105 664 Provision for income taxes, net of changes in deferred taxes (1,451) (3,017) Changes in working capital (8,480) 2,937 Cash provided by operating activities 7,525 15,631 Changes in working capital 8,480 (2,937) Maintenance capital expenditures (1,069) (1,832) Free cash flow 14,936 10,862 4,074 37.5 NM - Not meaningful (1) Interest expense, net, includes adjustments to derivative instruments related to interest rate swaps and non-cash amortization of deferred financing fees. For the quarter ended March 31, 2016, interest expense also included a non-cash write-off of deferred financing fees related to the February 2016 refinancing at Hawaii Gas. (2) Corporate allocation expense, intercompany fees and the tax effect have been excluded from the above table as they are eliminated on consolidation. (3) Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. (4) Other non-cash expense (income), net, primarily includes non-cash adjustments related to unrealized gains (losses) on commodity hedges. PAGE 7
Non-GAAP Reconciliations For the years ended December 31, 2016 and December 31, 2015 Change Year Ended December 31, (From 2015 to 2016) 2016 2015 Favorable/(Unfavorable) $ $ $ % ($ In Thousands) (Unaudited) Product revenues 213,159 226,952 (13,793) (6.1) Service revenues 20,762-20,762 NM Total revenues 233,921 226,952 6,969 3.1 Cost of product sales (exclusive of depreciation and amortization of intangibles shown separately below) 119,429 150,053 30,624 20.4 Cost of services (exclusive of depreciation and amortization of intangibles shown separately below) 16,335 - (16,335) NM Cost of revenue total 135,764 150,053 14,289 9.5 Gross margin 98,157 76,899 21,258 27.6 Selling, general and administrative expenses 24,276 21,475 (2,801) (13.0) Depreciation and amortization 11,325 9,335 (1,990) (21.3) Operating income 62,556 46,089 16,467 35.7 Interest expense, net (1) (5,559) (7,279) 1,720 23.6 Other expense, net (812) (556) (256) (46.0) Provision for income taxes (20,441) (14,261) (6,180) (43.3) Net income (2) 35,744 23,993 11,751 49.0 Less: net loss attributable to noncontrolling interests (3,663) - 3,663 NM Net income attributable to MIC (2) 39,407 23,993 15,414 64.2 Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow: Net income (2) 35,744 23,993 Interest expense, net (1) 5,559 7,279 Provision for income taxes 20,441 14,261 Depreciation and amortization 11,325 9,335 Pension expense (3) 1,272 1,125 Other non-cash (income) expense, net (4) (11,539) 4,090 EBITDA excluding non-cash items 62,802 60,083 2,719 4.5 EBITDA excluding non-cash items 62,802 60,083 Interest expense, net (1) (5,559) (7,279) Adjustments to derivative instruments recorded in interest expense (1) (2,088) (15) Amortization of debt financing costs (1) 948 483 Provision for income taxes, net of changes in deferred taxes (8,353) 184 Pension contribution (3,500) - Changes in working capital 9,342 (1,570) Cash provided by operating activities 53,592 51,886 Changes in working capital (9,342) 1,570 Maintenance capital expenditures (7,939) (9,338) Free cash flow 36,311 44,118 (7,807) (17.7) NM - Not meaningful (1) Interest expense, net, includes adjustments to derivative instruments related to interest rate swaps and non-cash amortization of deferred financing fees. For the year ended December 31, 2016, interest (2) Corporate allocation expense, intercompany fees and the tax effect have been excluded from the above table as they are eliminated on consolidation. (3) Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. Any cash contributions to pension plans are not included in pension expense, but rather reflected as a reduction to Free Cash Flow, as noted in the table above. (4) Other non-cash (income) expense, net, primarily includes non-cash adjustments related to unrealized gains (losses) on commodity hedges and asset retirement obligations. PAGE 8