FTAI Infrastructure Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited. The company was spun off on August 1, 2022; the 2022 comparative figures include pre-spin combined results and may not be directly comparable with standalone 2023 results.
Business context
FTAI Infrastructure owns and operates railroads, terminals and related infrastructure, and holds investments in power, gas, recycling and sustainability businesses. Its five reportable segments are Railroad, Jefferson Terminal, Repauno, Power and Gas, and Sustainability and Energy Transition. Corporate and Other includes FYX roadside assistance and corporate costs.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 |
|---|---|---|---|---|
| Revenue | $81.8 million | $65.9 million | $158.3 million | $112.0 million |
| Net loss | $(33.9) million | $(38.0) million | $(69.8) million | $(88.2) million |
| Net loss attributable to stockholders/Former Parent | $(38.9) million | $(29.5) million | $(79.4) million | $(72.3) million |
| Loss per share | $(0.38) | $(0.30) | $(0.77) | $(0.73) |
| Adjusted EBITDA (non-GAAP) | $27.7 million | $21.6 million | $49.6 million | $33.1 million |
| Cash flow from operations | Not separately presented | Not separately presented | $(16.9) million | $(55.4) million |
- Q2 revenue rose 24% and H1 revenue rose 41% year over year. Adjusted EBITDA increased 28% in Q2 and 50% in H1. Adjusted EBITDA margin was approximately 33.8% for Q2 and 31.3% for H1; this non-GAAP measure is not a substitute for GAAP earnings or cash flow.
- Revenue growth reflected higher Railroad carloads and rates, increased Jefferson Terminal throughput, a new Repauno butane contract, and FYX consolidation. FYX was consolidated beginning May 2022, affecting comparisons.
- GAAP net loss improved, but loss attributable to stockholders worsened as preferred dividends and accretion totaled $15.3 million in Q2 and $29.8 million in H1. Interest expense increased to $24.2 million in Q2 and $47.4 million in H1, from $6.5 million and $12.9 million, respectively.
- Cash and cash equivalents were $42.5 million and restricted cash was $55.0 million at June 30, 2023. Current assets of $214.4 million exceeded current liabilities of $182.1 million. Total assets were $2.44 billion.
- Debt, net of issuance costs, totaled $1.301 billion at June 30, 2023; gross borrowings were $1.330 billion. The company reported compliance with debt covenants. Redeemable preferred stock had a $294.4 million carrying value and a stated redemption amount of $448.2 million.
Material changes and unusual items
- Long Ridge equity-method earnings improved substantially, primarily due to unrealized gains on power swaps. FTAI also reported $1.6 million of Q2 interest income on its Long Ridge shareholder loan. The loan carried a 13% PIK rate and was due October 15, 2023.
- Capital spending on property, plant and equipment was $65.7 million in H1, down from $113.9 million. Investing cash outflow was $94.4 million, including $22.0 million of additional Long Ridge loans. Financing provided $59.1 million, primarily from borrowings; cash and restricted cash declined by $52.2 million.
- Q2 included $0.6 million of asset impairment; H1 impairment was $0.7 million, relating to railroad scrap assets. No goodwill impairment was reported.
- On July 5, 2023, the company issued an additional $100 million of 10.5% senior secured notes due 2027, at 95.5% of principal. Proceeds were used partly to repay the Transtar Revolver and Credit Agreement; the remainder was intended for general corporate purposes. The preferred holders consented to the issuance, and purchased $33.4 million of the additional notes.
- The board declared a $0.03-per-share common dividend on July 25, payable August 15, 2023. The filing does not provide numerical full-year earnings or cash-flow guidance.
Outlook, risks and contingencies
- Management said it believes liquidity is sufficient, while noting it is limiting discretionary spending and reprioritizing capital projects. It expects short-term needs to be met with cash, operating cash flow and future financings; these statements are subject to uncertainty.
- Key risks include substantial leverage and interest costs, limited operating history as a standalone public company, customer concentration, refinancing and capital-market access, variable interest rates, and the ability to generate cash to meet debt and preferred-stock obligations. One Railroad customer accounted for 54% of Q2 revenue; one Jefferson Terminal customer contributed 11%.
- Preferred stock dividends accrue at 14% annually, with specified rate increases and cash-payment requirements after the second anniversary of issuance. Failure to meet certain requirements can trigger significant holder rights, including the ability to elect a board majority after an uncured event of noncompliance.
- Jefferson Terminal goodwill valuation depends on projected contract volumes and throughput. Its estimated fair value exceeded carrying value by more than 10% but less than 20% at the October 2022 test; delayed contracts or volumes could increase impairment risk. Repauno and Long Ridge redevelopment also depends on environmental work, permits and approvals.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. The company said it did not expect current or threatened legal proceedings to have a material adverse effect, while acknowledging outcomes are uncertain.
Important facts for investors to verify
- Whether operating cash generation improves and planned investment and capital-project spending can be funded without additional costly borrowing.
- The post-July 2023 debt balance, interest burden, maturity schedule and covenant headroom following the additional notes and repayment of the revolver and Credit Agreement.
- Whether Long Ridge’s earnings improvement reflects durable operating performance or largely volatile, unrealized power-swap gains; also verify repayment or refinancing of the $52.3 million shareholder loan.
- Progress on Jefferson Terminal throughput, delayed contracts and the Repauno butane contract, and any resulting change in goodwill impairment risk.
- The cash cost and sustainability of preferred-stock dividends, the potential redemption amount, and the company’s ability to maintain common dividends.
- Customer concentration, environmental and permitting exposures, and the terms and related-party implications of the management agreement and Fortress ownership transaction.