Business context and reporting period
This is an unaudited Form 10-Q for Fortress Transportation and Infrastructure Investors LLC for the quarter and six months ended June 30, 2019, compared with the same 2018 periods. The filing describes aviation leasing, terminals, railroad and port operations. The request metadata names FTAI Aviation Ltd.; that does not match the registrant named in this filing.
Financial performance and liquidity
Amounts below are in millions of U.S. dollars unless stated otherwise.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $159.0 | $72.0 | $283.6 | $140.8 |
| Net income (loss) attributable to shareholders | $20.3 | $0.8 | $14.0 | $0.3 |
| Adjusted EBITDA (non-GAAP) | $94.1 | $52.2 | $160.4 | $100.3 |
| Cash provided by operating activities | Not separately presented for the quarter | $58.1 | $59.2 |
- Q2 revenue rose 121%; six-month revenue approximately doubled. Growth reflected higher aviation leasing revenue and Jefferson Terminal crude marketing, which began in Q3 2018. Crude marketing contributed $59.2 million in Q2 and $90.0 million year to date, with associated costs largely reflected in operating expenses.
- Q2 shareholder-attributable net income included a $22.6 million gain on equipment sales. The six-month figure also includes $24.4 million of such gains. Q2 and six-month net income improved year over year, but results also reflect these gains and a tax benefit.
- Operating cash flow was nearly flat year over year despite much higher reported earnings. Investing activities used $325.7 million, including $209.2 million for leasing equipment and $159.3 million for property and equipment, partly offset by asset-sale proceeds. Financing provided $321.1 million.
- Cash and cash equivalents were $115.6 million and restricted cash was $58.8 million at June 30, 2019. Total debt, net, was $1.631 billion, up from $1.237 billion at year-end 2018; $213.5 million was classified as due within one year. Total liabilities were $2.050 billion and equity was $1.038 billion.
- Capital spending and growth were financed in part with additional borrowings and note offerings. Six-month cash dividends were $56.8 million; the board declared a further $0.33-per-share dividend after quarter-end. Management’s non-GAAP Funds Available for Distribution was $157.1 million, but it excludes working-capital changes and acquisition and capital expenditures and is not equivalent to operating cash flow or free cash flow.
- The filing does not provide a clear consolidated operating-margin measure. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
Material changes and significant items
- Debt increased substantially, including additional 2022 and 2025 notes, revolving-facility borrowings and project financing. The company amended its main revolving credit facility, increasing commitments from $125 million to $250 million, extending maturity to January 2022 and raising the maximum debt-to-equity covenant ratio from 1.65:1 to 2.00:1. The company reported covenant compliance at quarter-end.
- Long Ridge power-plant development advanced: the 485-megawatt project has approximately $430 million of EPC and equipment agreements. Project credit agreements include a $445 million first-lien loan facility, a $154 million letter-of-credit facility and a $143 million second-lien facility. At June 30, $71.5 million was borrowed under the project credit agreements and $130 million of letters of credit had been issued.
- Electricity cash-flow hedges generated a $77.1 million Q2 fair-value gain in other comprehensive income, net of deferred tax, and a $34.1 million gain for the six-month period. This valuation movement materially affected comprehensive income and equity, but was not equivalent to realized operating cash flow.
- The company adopted the new lease accounting standard on January 1, 2019, recognizing approximately $46 million of right-of-use assets and lease liabilities at adoption. At June 30, operating lease liabilities were $43.5 million.
- One Jefferson Terminal customer represented approximately 23% of total revenue in both the quarter and six-month period; one customer accounted for 17% of receivables at June 30. Jefferson Terminal’s storage capacity was designed for 21.7 million barrels, of which approximately 2.9 million barrels, or 13%, was operational.
Outlook, risks and contingencies
- No formal consolidated earnings or revenue guidance is provided. Management expects Jefferson Terminal to generate positive Adjusted EBITDA in 2019, while acknowledging delays in anticipated contracts or volumes. Further delays or failure to secure contracts, rail capacity or pipeline development could impair projected growth and asset values.
- Management said it was evaluating potential acquisitions, but negotiations were not definitive and were not included in planned liquidity needs. It expected short-term liquidity needs to be met through cash, unused borrowing capacity, future financings and operating cash flows.
- Near-term refinancing and liquidity warrant attention: the $44.6 million FTAI Pride loan matured September 15, 2019; the $144.2 million Series 2016 bonds were subject to mandatory tender on February 13, 2020 absent remarketing or redemption; and the Jefferson Revolver commitment was scheduled to fall from $75 million to $50 million on August 1, 2019. In July, the subsidiary repaid $23 million under that revolver.
- Key risks include leverage and refinancing access, interest-rate exposure, customer concentration and defaults, commodity and oil-price spreads, construction costs and permitting, environmental liabilities, asset utilization and values, and dependence on the external manager. A hypothetical 100-basis-point rate increase was estimated to raise annual interest expense by about $2.2 million before interest-rate derivatives.
- Contingencies include a potential $0–$3.3 million exposure related to an offshore lessee’s charter obligation, contingent payments of up to $15 million relating to Repauno and up to $5 million relating to Long Ridge, and environmental remediation obligations of former owners at Repauno and Long Ridge. Management did not expect current or threatened legal proceedings to have a material adverse effect, while noting outcomes remain uncertain.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended issuer: the filing is for Fortress Transportation and Infrastructure Investors LLC, not the FTAI Aviation Ltd. named in the request metadata.
- Assess the quality and repeatability of earnings by separating equipment-sale gains, derivative fair-value movements and tax benefits from recurring operating performance.
- Track Jefferson Terminal’s crude-marketing margins, contract and volume ramp-up, customer concentration, operational storage capacity and pipeline and rail access.
- Review debt maturities, revolver capacity after its commitment reduction, covenant headroom, project-financing terms and the company’s ability to fund construction and dividends.
- Compare operating cash flow and cash needs with dividends and investment spending; interpret FAD in light of its stated exclusions.
- Monitor Long Ridge construction progress, project completion deadlines, outstanding letters of credit, permitting and environmental dependencies.