FTAI Infrastructure Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts below are in U.S. dollars; financial statement figures are unaudited. The company operates railroads, terminals and ports, holds an equity-method investment in Long Ridge, and has investments in sustainability businesses. FYX roadside services and shipping-container activities are included in Corporate and Other.
Comparability note: The company became a standalone public company on August 1, 2022. Prior-period statements include combined results before the spin-off and may not be directly comparable to standalone results.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $80.7 million | $78.6 million | $239.0 million | $190.6 million |
| Net loss | $(50.0) million | $(43.2) million | $(119.8) million | $(131.4) million |
| Net loss attributable to common stockholders / Former Parent | $(56.1) million | $(44.1) million | $(135.5) million | $(116.4) million |
| Loss per share, basic and diluted | $(0.55) | $(0.43) | $(1.32) | $(1.13) |
| Adjusted EBITDA, non-GAAP | $24.7 million | $26.1 million | $74.2 million | $59.2 million |
| Interest expense | $26.0 million | $19.2 million | $73.4 million | $32.1 million |
Revenue increased 2.7% in the quarter and 25.4% year to date. Net loss widened in the quarter but narrowed for the nine-month period. Loss attributable to common stockholders worsened in both comparisons, reflecting preferred dividends and accretion of $16.0 million in Q3 and $45.8 million year to date. Adjusted EBITDA declined 5.6% in Q3 and increased 25.3% year to date; it is a non-GAAP measure and should not be treated as net income or cash flow.
Operating expenses were $68.4 million in Q3 and $196.4 million year to date; total expenses were $94.9 million and $277.9 million, respectively. The filing does not present a conventional consolidated gross margin. Main segment drivers included higher rail activity, increased Jefferson Terminal throughput and assets placed in service, and the start of a Repauno butane throughput contract in April 2023. FYX roadside revenue was lower in Q3, while the year-to-date increase reflects its 2022 consolidation and price increases.
| Balance sheet / cash flow metric | September 30, 2023 | Comparison |
|---|---|---|
| Total assets | $2.385 billion | $2.478 billion at December 31, 2022 |
| Cash and cash equivalents | $24.4 million | $36.5 million at December 31, 2022 |
| Restricted cash | $53.5 million | $113.2 million at December 31, 2022 |
| Debt, net of issuance costs | $1.318 billion | $1.230 billion at December 31, 2022 |
| Redeemable preferred stock carrying value | $310.4 million | Redemption amount was $448.2 million |
| Operating cash flow, nine months | $(2.2) million | $(37.7) million in 2022 |
| Investing cash flow, nine months | $(139.0) million | $(194.9) million in 2022 |
| Financing cash flow, nine months | $69.5 million | $127.3 million in 2022 |
Cash and restricted cash combined were $77.9 million at quarter-end; restricted cash is not necessarily available for general use. The company used $78.7 million for property, plant and equipment during the first nine months and invested $51.0 million in Long Ridge convertible promissory notes. The cash-flow statement reports a $71.7 million net decrease in cash and restricted cash over the period.
Material changes and financing
- Q3 revenue gains in rail and Repauno were partly offset by lower FYX roadside activity and Jefferson Terminal revenue. Year-to-date growth also reflected FYX consolidation, higher refined-products throughput, rail carloads and rates, and fuel surcharges.
- Interest expense increased substantially year over year, primarily due to higher average borrowings. On July 5, 2023, the company issued an additional $100 million of 10.5% Senior Notes due 2027 at 95.5% of principal. Proceeds were used in part to repay and terminate the Transtar revolver and a $25 million credit agreement; debt extinguishment losses totaled $2.0 million.
- Gross debt was $1.352 billion before $33.1 million of issuance costs. No debt principal was scheduled to mature within 12 months, according to the filing; stated debt obligations include $87.8 million of interest due in that period. The company reported compliance with debt covenants at September 30.
- Series A preferred stock accrues dividends at 14% annually; unpaid dividends during the first two years increase the rate by 2 percentage points for the relevant periods. Cash payment is required after the second anniversary of issuance, and failure to pay can raise the rate to 18% and ultimately trigger noncompliance remedies. The filing says $60.1 million of dividends had been paid-in-kind by quarter-end.
Liquidity, outlook, risks and unusual items
Management stated it believes liquidity is sufficient and expects operating subsidiaries to generate cash to cover operating expenses and debt service, with short-term needs met through cash, operations or future financing. It also said it is limiting discretionary spending and reprioritizing capital projects. Potential transactions and financing, including increased subsidiary debt capacity, were under evaluation but were not definitive or included in planned liquidity needs. The filing provides no specific revenue, earnings or Adjusted EBITDA guidance.
Management cited $168.4 million of operating and finance lease obligations, including $8.5 million due within 12 months, and an expected $1.8 million preferred-stock cash dividend payment in the next 12 months. The board declared a common-stock cash dividend of $0.03 per share for Q3, payable November 16, 2023. Common dividends remain discretionary and subject to contractual limits.
- Concentration and operating exposure: One Railroad customer provided 55% of Q3 revenue and 52% for the nine-month period; one Jefferson Terminal customer provided 12% and 11%, respectively. Three customers represented 53% of receivables at quarter-end.
- Development and valuation risk: Management noted delays in certain Jefferson Terminal contracts or expected volumes. Its October 2022 goodwill valuation had fair value only 10% to 20% above carrying value; further contract or volume delays could weaken valuation. The filing reported no goodwill impairment in the periods shown.
- Long Ridge exposure: The company made a further $51.0 million investment under a shareholder loan bearing 13% paid-in-kind interest; the note balance was $83.5 million and its stated maturity was October 15, 2023. The filing text does not clearly state whether it was repaid, extended or otherwise resolved by the report date.
- Other risks: High leverage and financing costs, variable-rate exposure, customer defaults, infrastructure and development costs, environmental remediation and permitting, hazardous-material rail operations, regulation, commodity and interest-rate changes, and dependence on the external Manager. A 100-basis-point change in variable rates was estimated to change interest expense by about $0.3 million over the next 12 months, assuming no hedging.
- Unusual items: Long Ridge power-swap fair-value movements materially affected equity-method results; year-to-date results also included a $0.7 million asset impairment and $2.0 million debt extinguishment loss. The company said current and threatened legal matters were not expected to have a material adverse effect, while acknowledging uncertain outcomes.
Management reported effective disclosure controls and procedures as of quarter-end, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the $83.5 million Long Ridge loan due October 15, 2023 was repaid, extended, or otherwise settled, and the collectability of the loan and accrued PIK interest.
- Unrestricted liquidity available after excluding restricted cash, and the company’s near-term funding needs for capital projects, operations, debt interest and preferred dividends.
- Whether Jefferson Terminal contracts and volumes ramp as planned, given the narrow prior-year goodwill valuation cushion and disclosed delays.
- Customer concentration, especially the Railroad customer responsible for more than half of Q3 revenue, and renewal or default exposure.
- Preferred-stock dividend cash requirements, redemption economics and potential governance remedies if an event of noncompliance occurs.
- Debt refinancing capacity and sensitivity to interest rates, including the 10.5% notes due 2027 and the effect of rising financing costs on cash available for common dividends.
- How much reported Adjusted EBITDA converts into recurring operating cash flow, considering capital expenditure needs, working-capital movements, preferred dividends and interest.