Business context and reporting period
This summary covers the unaudited quarter and six months ended June 30, 2020. The filing registrant is Fortress Transportation and Infrastructure Investors LLC, despite the request metadata naming FTAI Aviation Ltd. The company owns and leases aviation equipment and operates or invests in transportation infrastructure, including Jefferson Terminal, Repauno and Long Ridge. Its railroad business was sold in December 2019 and is reported as discontinued operations.
Financial performance and position
Amounts below are in millions of dollars, except per-share data and where noted.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $94.3 | $149.8 | $207.1 | $264.7 |
| Net income (loss) from continuing operations | $(15.7) | $15.0 | $(20.1) | $5.1 |
| Net income (loss) attributable to shareholders | $(15.7) | $20.3 | $(18.6) | $14.0 |
| Adjusted EBITDA, non-GAAP | $66.5 | $92.7 | $138.5 | $157.5 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $44.7 | $58.1 |
- Q2 equipment-leasing revenue was $79.8 million, compared with $79.2 million; infrastructure revenue was $14.5 million, compared with $70.6 million. For the first half, equipment-leasing revenue rose to $166.3 million from $151.7 million, while infrastructure revenue fell to $40.9 million from $113.1 million.
- Q2 diluted loss per share from continuing operations was $0.18; the comparable prior-year period reported earnings of $0.23 per share. First-half diluted loss per share from continuing operations was $0.23, versus earnings of $0.15.
- Cash and cash equivalents were $50.9 million and restricted cash was $49.2 million at June 30, 2020, versus cash of $226.5 million and restricted cash of $16.0 million at year-end 2019. Total assets were $3.29 billion; total equity was $1.25 billion.
- Net debt carrying value was $1.60 billion at June 30, up from $1.42 billion at December 31, 2019. The company reported compliance with all debt covenants.
- For the six months, investing cash outflow was $298.1 million and financing cash inflow was $111.0 million. Cash and restricted cash combined declined by $142.5 million to $100.0 million.
- The company declared common dividends of $0.33 per share for each quarter and, in Q2, preferred dividends of $0.52 per Series A share and $0.50 per Series B share. Six-month cash dividends to common and preferred holders were $56.8 million and $8.6 million, respectively. Reported operating cash flow was below total dividends paid.
The filing does not provide a clear consolidated operating-margin figure. Adjusted EBITDA and Funds Available for Distribution (FAD) are non-GAAP measures; the company cautions that FAD excludes, among other things, capital expenditures and acquisitions and should not be viewed as a substitute for GAAP cash flow.
Material changes versus the prior comparable period
- Revenue declined by $55.5 million in Q2 and $57.6 million in the first half. The main driver was Jefferson Terminal’s exit from crude marketing in late 2019: crude-marketing revenue fell $59.2 million in Q2 and $81.8 million in the first half, with related cost of sales also falling sharply.
- Terminal-services revenue increased, reflecting greater activity and storage capacity at Jefferson Terminal. Aviation leasing revenue was broadly stable in Q2 and higher for the first half, supported by maintenance deposits recognized after early aircraft redeliveries and end-of-lease compensation.
- Net results were weaker, reflecting lower prior-year asset-sale gains, increased losses from unconsolidated entities, and a $10.5 million aviation leasing asset impairment. The first half also included a $4.7 million loss on extinguishment of debt from the Jefferson refinancing.
- Adjusted EBITDA decreased $26.2 million in Q2 and $19.0 million in the first half. The company attributes much of the reported revenue and expense contraction to the discontinued crude-marketing strategy, rather than a comparable reduction in terminal-services activity.
- Long Ridge became an equity-method investment after the December 2019 transaction; its results are no longer consolidated. The railroad sale also makes prior-year comparisons include discontinued operations.
Outlook, management commentary, risks and unusual items
- COVID-19: Management reported no material first-half operating impact on Aviation Leasing and no meaningful decline yet in lease-payment timing, but said some lessees faced increased financial stress and several were on non-accrual status at June 30. Management cited $224.1 million of maintenance and security deposits as protection against lessee defaults. The duration and financial effects of the pandemic remain uncertain.
- Aviation: The company owned 272 aviation assets at June 30—80 aircraft and 192 engines—and reported approximately 73% utilization for the quarter under its stated calculation. It acquired 19 aircraft and five engines in the first half and sold three engines. Impairment testing resulted in the $10.5 million charge.
- Liquidity and financing: Management said it believed liquidity was sufficient, while also describing spending limits and reprioritization of capital projects. On July 28, after quarter-end, the company issued $400 million of 9.75% senior notes due 2027, used $220 million to repay revolver borrowings and retained borrowing capacity of $250 million under the revolver. The remaining proceeds may be used for general purposes, including possible repurchase or redemption of 2022 notes and future investments. The company also established a preferred-share ATM program of up to $100 million; July sales generated approximately $2.4 million in net proceeds.
- Jefferson Terminal: Management continued to expect positive segment Adjusted EBITDA in 2020 and said it believed projected revenues were achievable, while acknowledging delays to certain anticipated contracts or volumes. Its outlook depends on ramping volumes, securing contracts and infrastructure capacity, permits, pipeline development and market conditions.
- Debt and rates: At June 30, $220 million of debt was subject to floating-rate indices. The filing estimates that, before derivatives, a 100-basis-point increase in variable borrowing rates would increase interest expense by approximately $2.2 million over 12 months; a corresponding decrease would reduce expense by approximately $0.5 million. LIBOR transition and refinancing risks remain.
- Contingencies and other items: The company is pursuing a lessee obligation in its offshore-energy business, with a stated potential loss range of $0 to $3.3 million. A Repauno non-controlling interest holder may receive contingent payments up to $15 million if specified conditions are met. Management did not expect current or threatened legal matters to have a material adverse effect, while noting litigation outcomes are uncertain.
- No formal consolidated earnings or revenue guidance is stated. Forward-looking statements are subject to risks including COVID-19, customer defaults, asset values and utilization, access to capital, leverage, infrastructure project execution, environmental matters, and the ability to sustain dividends. Disclosure controls were reported effective as of quarter-end.
Important facts for investors to verify
- Whether aviation lessee stress, non-accrual placements, utilization and deposit protections changed after June 30, and how these affect collections and asset values.
- Progress on Jefferson Terminal contracts, volume ramp-up, pipeline and permit milestones, and the assumptions supporting management’s positive 2020 Adjusted EBITDA expectation.
- Use of proceeds from the July 2020 notes issuance, any repurchase or redemption of 2022 notes, and the resulting debt cost, maturities and liquidity.
- Cash generation relative to common and preferred dividends, including maintenance capital needs and the limitations of FAD as a distribution measure.
- Potential additional asset impairments, Long Ridge investment performance, and any material developments in the disclosed offshore-energy, environmental or other contingencies.