FTAI Infrastructure Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The company owns and operates railroads, terminals and related infrastructure, with investments in power, recycling and sustainability businesses. Comparisons are with Q1 2023 unless noted. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Revenue | $82.5 million | $76.5 million; up $6.0 million (7.9%) |
| Operating expenses | $64.6 million | $65.2 million |
| Net loss | $50.3 million | $35.9 million |
| Net loss attributable to stockholders | $56.6 million; $0.54 per share, basic and diluted | $40.6 million; $0.39 basic and $0.40 diluted per share |
| Adjusted EBITDA (non-GAAP) | $27.2 million | $21.9 million; up $5.3 million |
| Net cash used in operating activities | $3.9 million | $12.1 million |
| Net cash used in investing activities | $18.8 million | $66.8 million |
| Cash and cash equivalents | $23.0 million | $29.4 million at December 31, 2023 |
| Restricted cash | $41.3 million | $58.1 million at December 31, 2023 |
| Total debt, net | $1.344 billion | $1.341 billion at December 31, 2023 |
| Total assets | $2.345 billion | $2.380 billion at December 31, 2023 |
Interest expense increased to $27.6 million from $23.3 million. The company reported $11.9 million of equity-method investment losses, versus $4.4 million of earnings in Q1 2023; management attributed the change mainly to lower unrealized gains on Long Ridge power swaps. Other income rose to $2.4 million, primarily reflecting interest income on the Long Ridge loan. Comprehensive loss attributable to stockholders was $60.7 million, including a $21.1 million other comprehensive loss related to equity-method investees.
Revenue gains reflected higher rail revenue, chiefly from increased carloads and rates, and new Repauno throughput activity. These were partly offset by lower roadside-services revenue at FYX and lower Jefferson Terminal revenue. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
Liquidity, debt and capital
Management said current liquidity and forecast operating cash flows are insufficient, on their own, to cover Jefferson Terminal’s $75.0 million credit agreement due December 13, 2024, $79.1 million of taxable Series 2020B bonds due January 1, 2025, and preferred-stock dividend obligations. The filing states that, if management’s plans are fully implemented, liquidity should be sufficient for obligations over the following 12 months.
- On April 2, 2024, Jefferson Terminal entered into a $75.0 million term loan facility bearing interest at Adjusted Term SOFR plus 4.00%; it matures no later than December 13, 2024, subject to an earlier maturity condition.
- Management’s plan includes refinancing the taxable bonds with new municipal bonds, potentially secured by additional unencumbered assets, and continuing to accrue preferred dividends in kind. On May 10, 2024, Jefferson Terminal announced an approximately $276 million municipal bond offering, expected to close in the coming weeks.
- Series A preferred stock has a 14% annual dividend rate, subject to increases under its terms. After August 1, 2024, dividends are required to be paid in cash; nonpayment can increase the rate to 18% and, if prolonged, trigger noncompliance remedies. Preferred stock redemption value was $446.5 million at March 31; the balance included $88.6 million of accumulated PIK dividends.
- Contractual obligations disclosed include $1.4 billion of debt principal and $0.5 billion of interest, of which $79.1 million of principal and $90.1 million of interest are due within 12 months; $166.5 million of lease obligations, including $8.2 million due within 12 months; and $38.6 million of preferred dividends due within 12 months, with an option to defer by accruing PIK dividends at a higher rate.
- The company was in compliance with debt covenants at quarter-end. A hypothetical 100-basis-point change in variable rates was estimated to change interest expense by approximately $0.4 million over the next 12 months, assuming no hedging.
Common dividends declared for the quarter were $0.03 per share, payable May 29, 2024. The board may change future dividends, and debt and preferred-stock terms constrain distributions.
Material changes and management commentary
- Railroad revenue rose $5.3 million; segment Adjusted EBITDA increased to $21.7 million from $17.2 million.
- Repauno revenue increased $5.5 million, primarily from a butane throughput contract that began in April 2023 and the absence of prior-year inventory-sale losses. Segment Adjusted EBITDA improved to a $1.7 million loss from a $4.9 million loss.
- Jefferson Terminal revenue declined $0.5 million, while operating costs and interest expense increased. Segment Adjusted EBITDA was $6.8 million versus $6.5 million.
- FYX roadside-services revenue fell $4.3 million. Corporate and Other Adjusted EBITDA declined to negative $8.1 million from negative $6.5 million, partly reflecting higher interest expense and professional fees.
- Power and Gas segment Adjusted EBITDA was $10.4 million, down from $11.3 million; Sustainability and Energy Transition Adjusted EBITDA was negative $1.9 million versus negative $1.7 million.
- Capital expenditures for property, plant and equipment were $12.9 million, compared with $39.9 million in Q1 2023. The company said it is limiting discretionary spending and reprioritizing capital projects while evaluating potential asset sales and financing transactions; those other potential transactions were not definitive or included in its liquidity assessment.
No formal earnings guidance was provided. Management expects operating subsidiaries to generate cash sufficient for operating expenses and debt service, and expects Jefferson Terminal to generate positive Adjusted EBITDA in future years; those expectations depend on contract execution, volumes and other assumptions.
Risks, contingencies and unusual items
- Liquidity and refinancing: The stated shortfall against near-term maturities and preferred dividends makes completion and terms of the proposed refinancing important. The municipal bond offering was announced after quarter-end and was not yet closed in the filing.
- Preferred-stock obligations: Cash-payment requirements begin after August 1, 2024. Failure to pay can raise the dividend rate and, after specified conditions, give preferred holders board-designation and voting rights.
- Customer concentration: One Railroad customer accounted for approximately 51% of Q1 revenue; one Jefferson Terminal customer accounted for 14%. Receivables from two customers represented 54% of net accounts receivable at March 31.
- Controls: Disclosure controls and procedures were deemed ineffective because of the material weakness previously identified in review of Jefferson Terminal goodwill-impairment cash-flow projections and assumptions. Remediation was ongoing.
- Valuation and development: Jefferson Terminal’s estimated fair value exceeded carrying value by more than 10% but less than 20% at the October 2023 impairment test. Delays in contracts, throughput growth or planned expansions could weaken valuation and lead to impairment.
- Operations and market exposure: Risks include interest rates, customer defaults, energy-market volatility, competition, regulatory and environmental requirements, project-development delays, and interruptions or uninsured losses. Repauno and Long Ridge redevelopment also depends on environmental work and approvals.
- Other items: The company invested $5.0 million in E-Circuit Motors in March 2024. It disclosed no material legal proceedings expected by management to adversely affect results, but noted that outcomes are inherently uncertain. The pending Fortress ownership transaction with Mubadala and Fortress management remained a disclosed risk.
Investor verification priorities
- Confirm whether the approximately $276 million municipal bond offering closed, its final proceeds, pricing, collateral and use of funds, and whether it refinances the near-term Jefferson Terminal and bond obligations.
- Track cash availability, including the distinction between $23.0 million of unrestricted cash and $41.3 million of restricted cash, and the company’s capacity to meet debt service and preferred dividends.
- Monitor Series A cash-dividend payments after August 1, 2024, accumulated PIK dividends, redemption terms and any preferred-stock noncompliance remedies.
- Assess customer concentration and the durability of Railroad and Jefferson Terminal contracts, volumes and collections.
- Review remediation and testing of the material weakness, and changes in Jefferson Terminal goodwill valuation assumptions and impairment headroom.
- Separate GAAP losses and cash flows from non-GAAP Adjusted EBITDA, including the impact of Long Ridge power-swap valuation changes and other equity-method investment results.