Business context and reporting period
The filing is Fortress Transportation and Infrastructure Investors LLC’s unaudited Form 10-Q for the three months ended March 31, 2018. The company owns and leases transportation equipment and operates railroad, terminal, port and related infrastructure businesses. The filing identifies the registrant as Fortress Transportation and Infrastructure Investors LLC.
Key financial metrics
Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $68.8 million | $44.7 million |
| Net loss | $9.3 million | $9.2 million |
| Net loss attributable to shareholders; diluted loss per share | $0.6 million; $0.01 | $4.4 million; $0.06 |
| Adjusted Net Income (non-GAAP) | $2.7 million | $(0.2) million |
| Adjusted EBITDA (non-GAAP) | $48.1 million | $22.1 million |
| Cash from operating activities | $11.5 million | $17.7 million |
| Cash used in investing activities | $113.5 million | $88.2 million |
| Cash and cash equivalents; restricted cash | $80.9 million; $25.8 million | $59.4 million; $33.4 million at December 31, 2017 |
| Debt, net | $710.6 million | $703.3 million at December 31, 2017 |
| Total assets; total equity | $2,047.8 million; $1,126.5 million | $1,955.8 million; $1,035.1 million at December 31, 2017 |
Revenue grew approximately 54% year over year. The shareholder-attributable net loss margin was approximately 0.8%, versus 9.9% in Q1 2017; consolidated net loss remained about $9.3 million. Operating cash flow was below the $27.3 million of dividends paid. The company reported no standard GAAP operating-margin figure; its Adjusted EBITDA is a non-GAAP measure and should not be treated as operating cash flow.
Material changes versus the prior comparable period
- Equipment-leasing revenue increased $24.4 million, chiefly from growth in aviation leasing and maintenance revenue as more aircraft and engines were on lease. Infrastructure revenue was nearly flat: higher railroad revenue was offset by lower Jefferson Terminal volumes.
- Total expenses rose $25.9 million, including $12.2 million more depreciation and amortization and $7.2 million more interest expense. Bad-debt expense increased to $1.4 million from $0.03 million.
- Shareholder-attributable net loss narrowed by $3.8 million. Adjusted Net Income improved by $3.0 million and Adjusted EBITDA increased by $26.0 million, both non-GAAP measures.
- Investing outflows increased $25.3 million, primarily reflecting equipment acquisitions and capital projects. Financing cash flow included $128.5 million of net proceeds from a January share offering.
- The company issued 7.0 million shares at $18.65 per share; shares outstanding increased to 82.8 million at quarter-end from 75.8 million at year-end 2017.
Outlook, commentary, risks and unusual items
- No quantified earnings or revenue guidance was provided. Management said it was evaluating potential transactions for the next 12 months, but none was definitive or included in planned liquidity needs.
- Management expects to meet short-term liquidity needs with cash on hand and operating cash flow, and says operating subsidiaries are expected to generate cash for operating costs and debt service. It cautioned that future dividends are discretionary and may change; operating cash flow has been below distributions.
- Jefferson Terminal revenue fell $3.6 million amid lower volumes, while expenses rose, including non-recurring operator-transition and facility costs. The segment recorded a $9.7 million shareholder-attributable loss.
- Debt covenants were reported in compliance at March 31, 2018. Subsequent to quarter-end, the company drew $25 million on its corporate revolving facility on April 12. It declared a $0.33-per-share dividend on May 3, payable May 29.
- Key risks include customer defaults and receivable collectability, asset utilization and lease renewals, capital-intensive development and environmental approvals at Repauno and Long Ridge, refinancing and interest-rate exposure, and the ability to sustain dividends. The filing estimates that an unhedged 100-basis-point rate increase could add approximately $644,000 to interest expense over 12 months.
- A lessee in Offshore Energy did not meet a charter obligation; the stated potential loss range is $0 to $3.334 million. The filing also discloses contingent payments of up to $15 million related to Repauno and $5 million related to Long Ridge, dependent on specified conditions.
- Disclosure controls and procedures were deemed ineffective at March 31, 2018 because of the material weakness in internal control over financial reporting previously reported in the 2017 Form 10-K; remediation efforts continued.
- Revenue-recognition guidance adopted January 1, 2018 had no material impact. The company reported no material impact from the other newly adopted accounting standards discussed in the filing.
Most important facts for investors to verify
- Whether aviation leasing growth and utilization—reported at approximately 87%—can persist, and how lease expirations and bad debts affect revenue and cash generation.
- Whether Jefferson Terminal can recover volumes and control costs, and whether infrastructure development at Repauno and Long Ridge meets operating, environmental and financing milestones.
- How recurring operating cash flow compares with dividends and investment spending; review the assumptions and exclusions in management’s non-GAAP Funds Available for Distribution measure.
- Debt maturities and refinancing exposure, including the Series 2016 bonds’ mandatory tender date in 2020 and the $450 million Senior Notes due in 2022.
- Progress in remediating the reported material weakness and the status of the Offshore Energy charter claim and contingent obligations.