FTAI Aviation Ltd. (filing registrant: Fortress Transportation and Infrastructure Investors LLC) — Q3 2016 Form 10-Q
Period: Three and nine months ended September 30, 2016; unaudited. Unless otherwise noted, dollar figures below are in millions. The company owns aviation and offshore equipment, shipping-container interests, a short-line railroad, and terminal infrastructure.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $41.7 | $35.2 | $106.4 | $102.8 |
| Net loss attributable to shareholders | $(1.3) | $(11.7) | $(18.3) | $(7.1) |
| Loss per share, basic and diluted | $(0.02) | $(0.16) | $(0.24) | $(0.11) |
| Adjusted EBITDA (non-GAAP) | $20.3 | $17.6 | $46.6 | $57.5 |
- Revenue increased 18% in Q3 and 4% for the nine-month period. The filing reports consolidated net losses of $5.6 million for Q3 and $34.8 million for the nine months; the smaller shareholder-attributable losses above reflect losses allocated to non-controlling interests.
- For the nine months, operating cash flow was $15.7 million, versus $26.9 million in 2015. Investing used $88.0 million, compared with $203.7 million; financing used $111.5 million, versus $603.0 million provided in 2015, which included substantial IPO proceeds.
- Cash and cash equivalents were $197.9 million at September 30, down from $381.7 million at year-end 2015. Restricted cash was $63.9 million, up from $21.6 million; it is subject to debt and project restrictions.
- Net debt was $261.5 million, versus $266.2 million at year-end. Total equity was $1,185.2 million. Debt due within one year was $8.5 million. The company reported compliance with debt covenants.
- Adjusted EBITDA rose 15% in Q3 but fell 19% for the nine months. These are non-GAAP measures and should not be treated as substitutes for GAAP results or cash flow.
Material changes versus comparable periods
- Q3 revenue growth was led by Aviation Leasing and Railroad. Aviation benefited from additional aircraft and engines on lease; rail revenue increased with traffic and expanded services.
- Offshore Energy revenue weakened sharply: nine-month segment revenue was $4.4 million versus $20.2 million a year earlier. Vessels faced off-hire periods, short-term charters and lower rates; the company also bore more vessel operating costs.
- Shipping-container revenue declined after the first-quarter sale of approximately 42,000 containers subject to finance leases. Jefferson Terminal’s nine-month revenue decreased, including from the expiration of a lease, partly offset by higher terminal services revenue.
- Depreciation and amortization increased to $43.3 million for the nine months from $32.9 million, reflecting acquired aviation assets and terminal assets placed in service. Interest expense increased to $15.8 million from $14.2 million.
- Consolidated results included a $7.5 million impairment after the company decided not to proceed with the MT6015 vessel purchase, and a $1.6 million loss from early repayment of Jefferson Terminal debt.
Outlook, capital allocation and risks
- The filing provides no quantified earnings or revenue guidance. Management said it was evaluating potential acquisitions, but no pipeline transaction was definitive or included in planned liquidity needs.
- The board declared a $0.33-per-share dividend on November 1, payable November 30, 2016. The company had also authorized up to $50 million of share repurchases over 12 months. Management cautioned that operating cash flow had been below shareholder distributions and future dividends remain at the board’s discretion.
- Management reported nine-month Funds Available for Distribution (FAD) of $56.3 million, compared with $38.0 million in 2015. FAD is a company-defined non-GAAP measure that includes asset-sale proceeds and excludes certain investment and capital spending; the filing cautions that it has significant limitations.
- Notable financing exposure includes $144.2 million of Series 2016 bonds at an initial 7.25% rate, subject to mandatory tender at par in February 2020 unless remarketed or redeemed. The company has related support and capital-call obligations. A hypothetical 100-basis-point increase in floating rates was estimated to raise next-12-month interest expense by approximately $0.7 million before derivatives.
- Other risks include weak offshore oil-and-gas markets, lease renewals and customer defaults, asset values and utilization, access to capital, environmental and regulatory obligations, and dependence on an external manager with potential conflicts of interest.
- Offshore Energy lessees asserted claims for reimbursable expenses or adjustments, with a disclosed potential range of $0–$10.3 million; no amount was accrued. Repauno also has contingent payments of up to $15 million tied to performance conditions. Repauno’s historic environmental remediation is the former owner’s responsibility, subject to indemnity and insurance, but delays or coverage shortfalls could affect redevelopment.
Investor facts to verify
- Whether the Q3 revenue gains, especially aviation and rail, translated into durable cash generation rather than being offset by higher depreciation, financing costs or corporate expenses.
- Offshore vessel utilization, lease rates and the timing and terms of replacement charters.
- Cash available for distributions after required debt service, capital spending, acquisitions and restrictions on restricted cash; assess the company’s FAD definition alongside GAAP cash flows.
- The 2020 Series 2016 bond tender or remarketing plan, associated support obligations, and covenant headroom.
- Exposure and potential outcomes for the offshore claims, Repauno environmental work and contingent consideration.
- The filing states disclosure controls were effective and identifies no material quarterly change in internal control over financial reporting.