FTAI 2018 Form 10-K Summary
Filing identity: The supplied filing is for Fortress Transportation and Infrastructure Investors LLC (NYSE: FTAI), not an entity named FTAI Aviation Ltd. It covers the fiscal year ended December 31, 2018; the filing is annual, with unaudited quarterly figures also provided.
Business context and reporting period
FTAI owns and operates transportation infrastructure and leases equipment across aviation, offshore energy, shipping containers, rail, and ports and terminals. Its six reporting segments include Aviation Leasing, Offshore Energy, Shipping Containers, Jefferson Terminal, Railroad, and Ports and Terminals. The company is externally managed by FIG LLC, an affiliate of Fortress, which operates within SoftBank following its 2017 acquisition.
Financial performance and liquidity
Unless indicated otherwise, amounts are in U.S. dollars. Financial statement values below are in millions.
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $379.9 | $217.7 |
| Net loss, consolidated | ($15.7) | ($23.2) |
| Net income attributable to shareholders | $5.9 | $0.1 |
| Adjusted Net Income (non-GAAP) | $10.1 | $10.4 |
| Adjusted EBITDA (non-GAAP) | $222.2 | $136.5 |
| Net cash provided by operating activities | $133.7 | $68.5 |
| Net cash used in investing activities | ($703.5) | ($472.3) |
| Net cash provided by financing activities | $597.9 | $363.1 |
| Cash and cash equivalents at year-end | $99.6 | $59.4 |
| Restricted cash at year-end | $21.2 | $33.4 |
| Debt, net | $1,237.3 | $703.3 |
| Total equity | $1,053.8 | $1,035.1 |
Revenue increased about 75%, driven principally by Aviation Leasing growth and new crude marketing activity at Jefferson Terminal. Adjusted EBITDA rose about 63%, while Adjusted Net Income was slightly lower. The GAAP consolidated net loss coexisted with positive income attributable to shareholders because of losses allocated to non-controlling interests. The filing does not present a conventional company-wide operating margin; adjusted EBITDA is a non-GAAP measure.
Operating cash flow increased by $65.2 million. Investment spending remained substantial, and financing relied on borrowing and equity issuance. FTAI issued common shares for net proceeds of about $147.5 million and paid $110.6 million in dividends. Management states that operating cash flow has been below shareholder distributions. FAD, a non-GAAP measure, was $181.7 million versus $177.3 million; its calculation includes asset-sale proceeds and excludes certain investment, capital expenditure, and working-capital effects, so it is not equivalent to operating cash flow or free cash flow.
At year-end, scheduled principal payments were $71.7 million in 2019, $146.0 million in 2020, and $552.1 million in 2022, including the $550 million 2022 Notes. The company reported compliance with debt covenants at December 31, 2018. In February 2019, it issued another $150 million of 2022 Notes and increased its revolving credit commitment to $250 million, extending maturity to January 2022.
Material changes versus the prior comparable period
- Aviation Leasing revenue increased $87.5 million, chiefly from more aircraft and engines on lease and higher maintenance revenue. Year-end aviation equipment utilization was approximately 91%, compared with 86% in 2017.
- Jefferson Terminal began Canadian crude sourcing, logistics, and marketing in the third quarter. This added $60.6 million of revenue, with related costs also recorded in expenses; thus part of reported growth reflects grossed-up marketing activity.
- Ports and Terminals revenue rose $12.6 million amid greater activity at Long Ridge and Repauno. Railroad revenue rose $5.8 million with higher traffic and expanded services.
- Offshore Energy revenue declined $4.4 million, and the segment recorded a $15.1 million shareholder-attributable loss, compared with $0.2 million of income in 2017. Management cited shorter or less favorable periods on hire and continuing weakness in the offshore market.
- Debt, net increased $534.1 million, while interest expense rose $19.0 million to $57.9 million, largely reflecting higher average borrowings.
- Fourth-quarter 2018 revenue was $137.9 million and net income attributable to shareholders was $1.0 million; fourth-quarter 2017 figures were $61.4 million and $3.0 million, respectively.
Outlook, risks, contingencies, and unusual items
- Management expects Jefferson Terminal to generate positive Adjusted EBITDA in 2019. It noted that some customer contracts and expected volumes had been delayed; projections depend on additional contracts, rail capacity, permits, pipeline development, throughput, and oil-price spreads. Only about 2.1 million barrels of the terminal’s planned 21.7 million barrels of storage capacity were operational at year-end.
- In February 2019, FTAI’s Long Ridge subsidiary entered into agreements to build a 485-megawatt gas-fired power plant, with construction and equipment agreements totaling approximately $430 million. Related project financing is described as non-recourse to FTAI. Fixed-price power agreements cover 457 megawatts, beginning in 2022.
- Management highlighted risks from customer defaults and concentration, lease renewals and asset values, sector cyclicality and oversupply, substantial leverage and refinancing needs, development delays and cost overruns, environmental liabilities, and interest-rate changes. One customer accounted for approximately 16% of 2018 revenue.
- Two material weaknesses identified in 2017 controls at Jefferson and in 2018 controls in Aviation Leasing were reported as remediated by year-end 2018. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2018; the auditor also gave an unqualified opinion on the financial statements.
- Offshore lessees asserted claims for reimbursable expenses or charter adjustments, with a stated potential damages range of $0 to $3.3 million; no amount was accrued. Management reported no anticipated environmental cleanup expenditure relating to the 2013 Lac-Mégantic derailment, which occurred before FTAI’s ownership, while noting that future claims cannot be ruled out.
- The board declared a $0.33-per-share dividend for the fourth quarter, payable in March 2019. The filing states that dividends remain discretionary and may change.
Important facts for investors to verify
- Whether Jefferson Terminal’s delayed contracts, throughput ramp, pipeline connections, and 2019 positive Adjusted EBITDA expectation are being achieved.
- How much of revenue growth and cash generation is recurring leasing or infrastructure activity versus crude marketing and asset-sale proceeds.
- The capacity to meet near-term maturities and service debt, including the 2020 bond tender and 2022 Notes, and the effect of subsequent borrowing.
- Whether operating cash flow can sustainably support dividends and investment needs, given that distributions exceeded operating cash flow in 2018.
- Offshore vessel utilization, lease coverage, and exposure to the oil-and-gas cycle, as well as customer concentration and receivable collection.
- Progress, capital requirements, financing terms, and execution risks for the Long Ridge power plant and other terminal developments.
- The status of environmental, contractual, and other contingencies, and the continued effectiveness of remediated internal controls.