CorEnergy Infrastructure Trust Inc (CORR) 2021 Q1 法說會逐字稿

Greetings. And welcome to CorEnergy First Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Matt Kreps of Investor Relations. You may begin.

Thank you, and thank you, everyone, for joining today's CorEnergy Infrastructure Trust conference call. With me today are Dave Schulte, CEO; John Grier, COO; and Robert Waldron, CFO. Also joining us, Kristin Leitze, our Chief Accounting Officer. For those of you joining by telephone, yesterday after the market closed, we published a press release announcing the first quarter results and outlook for 2021. We have also published a slide deck to accompany today's call, which is available online at the Investor Relations section of corenergy.reit. You can also access the webcast replay on the site, typically posted within a couple of hours of the live call's end.

I would like to remind everyone that the statements made during the course of this presentation that are not purely historical may be forward-looking statements and are subject to the safe harbor protection available under the applicable securities laws. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in our filings with the SEC. Those documents are available on the Investor Relations section of our website. We do not update our forward-looking statements.

During this call, we will make reference to certain forward-looking non-GAAP metrics which will be reconciled in subsequent filings as a part of our results reporting. We will make additional disclosures with the SEC, including, but not limited to, 8-Ks filed with respect to the Crimson transaction and a proxy statement. We encourage all of you to review our complete disclosures, risk factors, GAAP numbers and those non-GAAP metrics with related reconciliations.

And with that, I would like to now turn the call over to Dave Schulte. Please go ahead.

Thanks, Matt. In the first quarter, CorEnergy established a new foundation of critical infrastructure assets on which we can build a significant platform. Our legacy natural gas transmission and distribution assets and our new Crimson Midstream crude oil pipelines have decades of history serving diverse creditworthy customers with regulated service models. Our customers own the commodities being stored or transported on our networks, while our role is to provide reliable delivery of these products. This basic business model is the basis for our qualification as a tax-efficient real estate investment trust.

We have a large addressable market opportunity having created a combination of desirable attributes which are new to the industry segment in which we operate. And the fundamental building blocks for our future, we created on both sides of our balance sheet. We also established solid coverage of our debt and preferred obligations. We established a baseline of dividend coverage for our common stockholders, and we have a path to growing that dividend to our targeted range from visible commercial activities. The management of both Crimson and our management company, our rolling equity for our ownership stakes where a significant amount of that equity upon stockholder approval will be subordinated to our shareholders' common stock, which provides a cushion for the dividend to our common holders. This places the execution risk on the insiders who received shares as consideration in the purchase agreements and who collectively will own a substantial share of our equity. The management teams have decades of history operating our assets and have confidence in our ability to execute our strategy.

Now turning to Slide 5. The majority of our revenue is now derived from regulated assets under cost-of-service model that enhances long-term predictability. We believe the increased clarity around our cash flows will support proactively delevering the balance sheet. CorEnergy is now reviewing a number of potential opportunities to expand within our footprint as well as to diversify our entire platform. And finally, we are evaluating our potential role in the long-term energy transition that is now underway in the United States.

With that, I'll turn the call over to Robert to review our financials.

Thanks, Dave. First quarter of 2021 is the first time Crimson is included in the core financials. However, only 2 months are included in the results we are reporting today since February 1 was the effective date of the transaction.

As you can see on Slide 6, we had adjusted EBITDA of $8.1 million; cash available for distribution of negative $4.3 million; and maintenance CapEx of $1.4 million in Q1. The cash available for distribution includes $6.1 million of onetime transaction expenses. Apart from the effect of the transaction expenses, the cash available for distribution was $1.8 million for the quarter. You might notice we are focusing on 2 metrics here, adjusted EBITDA and CAD or cash available for distribution.

These are non-GAAP measures and reconciliations of these numbers to net income or loss and cash used for operating activities are provided in the earnings release, the slides accompanying this call and the 10-Q. We believe these figures help assess the operational and cash performance of our business by excluding noncash items that are part of the GAAP accounting metrics we report as part of our quarterly results. We will continue to report the standard REIT measurements, including NAREIT FFO, but these measures subtract noncontrolling interests, so we do not highlight them as representative of our operational and cash performance metrics.

Adjusted EBITDA as presented is intended to measure -- intended to be a measure of operating performance of our business without regard to financing method or capital structure. CAD is intended to be a measure of cash generate -- the cash-generating ability of our business after servicing our debt and preferred equity. The remaining cash is available for dividends, voluntary debt repayment, stock buybacks, funding and growth CapEx and other needs as deemed appropriate by the company. When using CAD, it is helpful to take into account special items such as transaction expenses, which are included in our definition of CAD.

The last item I wanted to touch on in the financial results is maintenance capital. Our maintenance capital expenditures generally do not occur evenly throughout the year, so any given quarterly number may not be -- may not provide a good estimate of our annual expenditure when annualized.

The graph on the bottom right of Slide 6 is the historical quarterly average daily crude oil volume, which is entirely from our Crimson operations. On average, in Q1, we transported approximately 198,000 barrels for our customers on a daily basis. As you can see, the disruptions of 2020 on both sides of our pipeline resulted in lower volumes and we have yet to see the effects of higher crude oil prices on production as that tends to lag.

Shifting to dividends, the company declared dividends on its preferred A -- series preferred A and also $0.05 per share on its common stock, unchanged from previous quarters. The company expects all dividends paid in 2021 to be characterized as a return of capital. Distributions were also declared on the Class A-1 and Class A-2 units, which are the newly issued securities as part of the Crimson transaction. These securities receive distributions equivalent to the dividends declared on CORR Series C and CORR Series B preferred, respectively, as if they were outstanding. These distributions represent the period from April 1 to May 31 since they are paid current on the payment date. Distributions were not declared on the newly issued A-3 units, which were also issued in the Crimson transaction as they only started accruing distributions on May 1. They will be entitled to distributions equal to dividends declared on the Class B common stock, so their first potential distribution will be in August for Q2.

As Dave noted, these are subordinated to our common equity, placing the first line of execution risk on insiders and providing what we believe should be greater confidence in the payment of common dividend. At present, the Board has indicated an intention to pay the A-2 in kind and all other distributions in dividends and cash. For reference, Pages 57 and 58 of our 10-Q provide additional details on our capitals -- our current capital structure and what our capital structure and share count looks like on a fully converted basis. This information is also provided in the slides accompanying this call.

Slide 7 covers our outlook, which remains the same as previously disclosed, except for an adjustment to timing to align to the pace of economic recovery in California. We expect to reach our targeted annualized numbers in the second half of 2021, including an annualized adjusted EBITDA run rate of $50 million to $52 million. That level of adjusted EBITDA provides approximately 1.75x dividend coverage on both common stock and Class B, assuming full conversion of the Series B preferred to Class B common stock, which does require shareholder approval. In order to achieve our target dividend of $0.35 to $0.40 per share, we need an additional $5 million of cash available for distribution above the annualized outlook mentioned. We believe that it is possible through a combination of return to pre-COVID conditions, organic growth opportunities and Crimson transaction synergies.

At this time, we'll take a few questions from our covering analysts or institutional stockholders before closing the call. If you have additional questions or follow-up needs not addressed in today's call, please reach out to our Investor Relations team, and they will make necessary arrangements.

Operator, will you please provide instructions for Q&A? Thank you.

(Operator Instructions) And our first question is from Selman Akyol with Stifel.

So in terms of thinking about future acquisitions, and you've highlighted Crimson sort of with the cost-of-service models, highly predictable cash flow. Should we be thinking that's what you're looking for going forward? Or is it much wider than that?

This is John Grier. And the short answer to that is we're working on both of those. So there are regulatory issues that we can do that will be helpful for our company. And we're -- we've got, I'll say, a number of acquisitions that we're currently looking at, some of which are in our area and are generally accretive to the assets we already own. And some of our -- some of them are in different locations, but we've got a number of companies and asset groups that we're looking at.

Got it. And then as I look at sort of the 198,000 barrels per day for this quarter, is there any cadence you might be able to break out January, February, March? And then maybe where -- how things -- April is shaking out? Or is it still kind of a decline line? Because I know you also said oil production lags and the other question, I guess, I would have then is how long does it lag before we sort of see an upturn?

That's a good question, and it's a predictive sort of question that I can't fully address. It has -- we get some discussions among people in our company about future volumes, there are some that were moved into the P66. We think they're coming back. But it's pretty difficult for me to address exactly what I think is going to happen in the future. But no reason to believe that there's any negative consequence for our company.

Okay. And then as I recall, maybe initially, you go in once a year for a rate case to adjust rates for cost of service. When does that happen?

Generally, in the summer, but that's -- I'll just say, among management right now, it is under consideration even as we speak.

(Operator Instructions)

Operator, if that's all, why don't we thank everyone for joining us today. And as a reminder, if you like to meet with one of us at an upcoming investor conference event or have a direct one-on-one call, you're welcome to contact our IR team. We'll be happy to take care of you. Thanks, everyone, and have a great afternoon.

Thank you, everyone. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.