FTAI Aviation Ltd. quarterly report, Q3 FY2017

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FTAI Aviation Ltd. — Form 10-Q Summary

Registrant clarification: The supplied filing is for Fortress Transportation and Infrastructure Investors LLC, not an entity named FTAI Aviation Ltd. It covers the quarter ended September 30, 2017; financial comparisons are to the corresponding 2016 periods. Dollar figures below are in millions unless noted.

Business context and reporting period

The company owns and leases aviation and offshore equipment and shipping containers, and operates railroad, terminal, and port assets. Its six reportable segments are Aviation Leasing, Offshore Energy, Shipping Containers, Jefferson Terminal, Railroad, and Ports and Terminals. The unaudited statements are consolidated GAAP results.

Financial performance and liquidity

  • Third-quarter revenue: $60.4 million, up 44.7% from $41.7 million. Equipment-leasing revenue rose to $49.6 million from $30.1 million; infrastructure revenue was $10.7 million versus $11.7 million.
  • Third-quarter earnings: Consolidated net loss was $1.7 million, compared with $5.6 million. Net income attributable to shareholders was $3.0 million, or $0.04 per diluted share, versus a shareholder loss of $1.3 million, or $0.02 per share. Adjusted EBITDA, a non-GAAP measure, was $37.8 million versus $20.3 million.
  • First nine months: Revenue was $156.2 million, up 46.9%. Consolidated net loss was $16.7 million versus $34.8 million; shareholder-attributable loss was $2.9 million, or $0.04 per share, versus $18.3 million, or $0.24 per share. Adjusted EBITDA was $88.7 million versus $46.6 million.
  • Cash flow: Nine-month operating cash flow was $52.4 million, up from $15.7 million. Investing used $275.7 million, including aircraft and equipment purchases and infrastructure investment; financing provided $331.6 million. Cash and cash equivalents ended the quarter at $176.4 million, with $36.5 million of restricted cash.
  • Balance sheet and debt: Total assets were $1.91 billion and total equity $1.08 billion. Net debt was $655.6 million, up from $259.5 million at December 31, 2016. The increase reflected, among other items, $350 million principal amount of 6.75% senior notes due 2022 and $60 million drawn on a $75 million revolver. The company reported compliance with debt covenants at quarter-end.
  • Dividends: Cash dividends paid in the first nine months totaled $75.0 million; the filing reports $0.99 per share declared for that period. On November 2, the board declared a further $0.33 per share for the quarter, payable November 27.

Changes versus the prior comparable periods

  • Aviation Leasing drove much of the revenue increase as the portfolio expanded and more aircraft and engines were on lease; maintenance revenue also increased. The company reported 141 aviation assets and approximately 88% utilization at September 30.
  • Jefferson Terminal revenue declined, primarily on lower volumes. Railroad revenue increased with higher traffic and expanded service offerings. Hannibal, acquired in June 2017, contributed lease revenue within Ports and Terminals.
  • Expenses rose with portfolio growth: nine-month depreciation and amortization increased to $62.4 million from $43.3 million, and interest expense increased to $21.3 million from $15.8 million.
  • Comparative earnings also benefited from no repeat of the 2016 $7.45 million asset impairment. 2017 included $6.7 million of net gains on equipment sales and a $1.1 million gain from a settlement involving a non-controlling-interest holder. Debt extinguishment generated a $2.5 million loss in the 2017 nine-month period.

Outlook, risks, contingencies, and unusual items

  • The filing gives no consolidated earnings or revenue guidance. Management said it expected Jefferson Terminal to generate positive Adjusted EBITDA during the first half of 2018; this expectation depends on ramping contracted volumes and obtaining additional storage contracts. Jefferson Terminal had negative Adjusted EBITDA in the periods reported.
  • Management said operating cash flow had been below shareholder distributions and that future dividends remain discretionary. Its stated long-term goal was a 50%–60% payout ratio of Funds Available for Distribution (FAD), a non-GAAP measure with stated limitations. Nine-month FAD was $130.0 million, including asset-sale proceeds; it should not be treated as GAAP operating cash flow or as assurance of dividend coverage.
  • On October 3, 2017, the company repaid the $60 million revolver balance, including interest, for $60.489 million; it reported no revolver balance thereafter.
  • Principal risks include customer defaults and lease renewals, asset utilization and resale values, aviation and offshore-market conditions, oil-and-gas volatility, access to financing, leverage and interest rates, construction and development execution, environmental and regulatory obligations, and the company’s reliance on its external manager. The pending Fortress/SoftBank transaction was also identified as a potential source of uncertainty for the manager relationship.
  • Offshore lessees asserted claims for reimbursable expenses or charter adjustments; the disclosed potential range was $0–$6.58 million, with no liability recorded. Repauno and Hannibal redevelopment depends partly on environmental work and approvals; former owners have related obligations and indemnities, subject to limits and conditions. Contingent payments may be due to Repauno’s non-controlling holder (up to $15 million) and the Hannibal seller (up to $5 million), if specified conditions are met.

Most important facts for investors to verify

  • Confirm the registrant identity: the filing is for Fortress Transportation and Infrastructure Investors LLC; the request’s company name differs.
  • Assess the durability of aviation lease and maintenance revenue growth, asset utilization, and lease expirations, alongside customer and asset concentration.
  • Evaluate debt maturities, interest costs, covenant headroom, and the effect of the October revolver repayment on liquidity.
  • Compare recurring operating cash generation with dividends and investment spending; review the assumptions and limitations behind FAD and Adjusted EBITDA.
  • Monitor Jefferson Terminal’s volume recovery and the timing, costs, environmental approvals, and funding needs for Repauno and Hannibal development.
  • Track the offshore claims, environmental obligations, contingent acquisition payments, and the potential effects of the Fortress/SoftBank transaction on management.