FTAI Transportation & Infrastructure Investors LLC — Q2 2016 Form 10-Q
Registrant note: The supplied filing is for Fortress Transportation and Infrastructure Investors LLC, not an entity named FTAI Aviation Ltd. It covers the quarter and six months ended June 30, 2016; financial statements are unaudited. Unless stated otherwise, dollar amounts below are U.S. dollars in millions.
Business context and reporting period
The company owns and leases transportation equipment and operates infrastructure businesses across Aviation Leasing, Offshore Energy, Shipping Containers, Jefferson Terminal and Railroad. It is externally managed by an affiliate of Fortress. At June 30, 2016, it reported $1.575 billion of assets and $1.215 billion of equity.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $33.2 | $33.6 | $64.6 | $67.5 |
| Net income (loss) attributable to shareholders | $(11.2) | $(0.8) | $(17.0) | $4.6 |
| Basic and diluted EPS | $(0.15) | $(0.01) | $(0.22) | $0.08 |
| Adjusted EBITDA (non-GAAP) | $14.0 | $17.1 | $26.3 | $39.9 |
| Operating cash flow | Not presented by quarter | $1.0 | $14.6 |
Revenue declined 1.1% in Q2 and 4.3% for the first half. Adjusted EBITDA margin, calculated as Adjusted EBITDA divided by revenue, was approximately 42.3% in Q2 and 40.6% for the first half; this is a non-GAAP-derived measure, not a reported GAAP margin. The filing does not provide a clear conventional gross-margin measure.
At June 30, cash and cash equivalents were $276.2 million, restricted cash was $69.6 million, and net debt was $262.9 million. Total debt before issuance costs was $270.5 million; $8.3 million was due within one year. Cash less reported net debt implies $13.3 million of net cash, but restricted cash is not necessarily available for general use. Operating cash flow was only $1.0 million for the first half. The company reported non-GAAP Funds Available for Distribution of $46.1 million, which includes asset-sale proceeds and excludes working-capital changes and certain investment and capital-expenditure needs.
Dividends declared were $0.33 per share for Q2 and $0.66 per share for the first half. A further $0.33-per-share Q2 dividend was declared August 2, payable August 29, 2016.
Material changes versus the prior comparable period
- Shareholder results weakened substantially: the company moved from a $0.8 million Q2 2015 loss to an $11.2 million Q2 2016 loss, and from first-half income of $4.6 million to a $17.0 million loss.
- First-half Adjusted EBITDA fell by $13.6 million to $26.3 million. Results included a $7.45 million impairment associated with the planned offshore vessel MT6015, a $1.58 million loss on extinguishment of debt, and lower earnings from the shipping-container joint venture.
- Aviation Leasing grew: first-half segment revenue rose to $39.3 million from $28.1 million, supported by acquired aircraft and engines and higher maintenance revenue. The portfolio had 71 assets and was approximately 85% utilized at quarter-end.
- Offshore Energy first-half revenue dropped to $1.5 million from $13.8 million. Certain vessel charters ended or were terminated; short-term leasing also shifted more operating costs to the company. Its ROV support vessel was off-lease at June 30.
- Railroad first-half revenue increased to $15.7 million from $11.8 million, attributed to higher traffic and expanded services. Jefferson Terminal first-half revenue fell to $7.0 million from $10.0 million, including the effect of an expired lease arrangement and lower terminal volumes.
- Debt declined modestly from $266.2 million at December 31, 2015 to $262.9 million net. The company repaid the Jefferson Terminal and container loans and issued $144.2 million of Series 2016 bonds.
Outlook, risks, contingencies and unusual items
- No quantified earnings or revenue guidance is provided. Management said it was evaluating potential transactions but none was definitive or included in planned liquidity needs.
- On July 1, 2016, after quarter-end, the company acquired Repauno Delaware Port for $25 million. A third party received a minority interest and may receive payments if performance targets are achieved.
- The Series 2016 bonds bear initial interest at 7.25%, with a mandatory tender at par on February 13, 2020 unless remarketed or redeemed. The company has related support and capital-call obligations, including covenants concerning aviation assets and minimum equity. Management reported compliance with debt covenants at June 30.
- A lessee’s offshore-energy claim seeks reimbursable expenses or adjustments; the disclosed potential range is $0 to $3.247 million. No liability was recorded, and the company says it intends to defend the claim.
- Key risks include charter renewals and utilization, customer credit and concentration, oil-and-gas industry weakness, asset values and obsolescence, environmental and rail regulation, access to capital and variable interest rates. A 100-basis-point rate increase on unhedged floating-rate borrowings was estimated to add approximately $0.67 million to interest expense over the next 12 months.
- Manager fees and expense reimbursements rose versus 2015 under post-IPO arrangements. The filing also describes potential conflicts of interest with the external manager and its affiliates. Disclosure controls were reported effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Fortress Transportation and Infrastructure Investors LLC, despite the request identifying FTAI Aviation Ltd.
- Review the causes and expected duration of offshore vessel downtime, the status of the off-lease ROV vessel, and any subsequent MT6015 contract or recovery developments.
- Assess recurring cash generation against the $0.33 quarterly dividend. In particular, distinguish operating cash flow from FAD, which includes asset-sale proceeds and excludes important investment and capital-spending needs.
- Review the Series 2016 bond terms, 2020 tender/refinancing exposure, related support commitments, covenant restrictions and availability of unrestricted cash.
- Track the offshore claim, Jefferson Terminal environmental and operating costs, and customer receivable concentrations; two offshore customers represented 22.2% and 21.6% of net receivables at quarter-end.
- Evaluate the quality of reported earnings and non-GAAP measures, including the MT6015 impairment, debt-extinguishment loss, asset-sale gains and the reversal of previously recognized equity compensation expense.