FTAI 2017 Form 10-K Summary
Filing identity: The supplied filing is for Fortress Transportation and Infrastructure Investors LLC, not FTAI Aviation Ltd. It covers the fiscal year ended December 31, 2017; financial statement amounts below are in U.S. dollars unless noted.
Business context and reporting period
FTAI is an externally managed owner and operator of transportation infrastructure and leasing assets across aviation, offshore energy, shipping containers, rail, and ports and terminals. At year-end, it reported $1.96 billion of assets and $1.04 billion of total equity. The 2017 portfolio expanded through aviation equipment purchases and the June acquisition of Long Ridge, an Ohio River port asset.
Financial and operating metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $217.7 million | $148.7 million |
| Consolidated net loss | $(23.2) million | $(40.6) million |
| Net income (loss) attributable to shareholders | $0.1 million | $(20.1) million |
| Adjusted EBITDA (non-GAAP) | $136.5 million | $69.0 million |
| Net cash from operating activities | $68.5 million | $30.9 million |
| Net cash used in investing activities | $(440.2) million | $(213.1) million |
| Debt, net | $703.3 million | $259.5 million |
| Cash and cash equivalents | $59.4 million | $68.1 million |
| Restricted cash | $33.4 million | $65.4 million |
| Total equity | $1.04 billion | $1.17 billion |
Revenue rose 46%, led by aviation leasing growth, higher maintenance revenue, and offshore vessel activity. Aviation leasing revenue increased to $156.8 million; aircraft and engine utilization was approximately 86% at year-end. Railroad revenue increased to $32.6 million. Jefferson Terminal revenue fell to $10.2 million as construction and the end of a take-or-pay contract reduced throughput. Ports and Terminals contributed $4.8 million after the Long Ridge acquisition and activity at Repauno.
Operating cash flow improved, but remained below the $100.1 million of cash dividends paid. Management’s non-GAAP Funds Available for Distribution (FAD) was $177.3 million; the company cautions that FAD excludes acquisition and capital spending, maintenance capital needs, and other items, and is not a substitute for GAAP cash flow. The company declared $1.32 per share in dividends for 2017.
Material changes versus the prior period
- Debt increased by $443.8 million, principally reflecting $450 million principal amount of 6.75% senior notes due 2022 and other borrowing activity. Year-end net debt was $703.3 million; the revolving credit facility had no outstanding borrowings.
- Interest expense increased to $38.8 million from $19.0 million. Depreciation and amortization rose to $88.1 million from $60.2 million as the asset base grew.
- Higher gains on asset sales and the absence of the prior-year $7.5 million impairment helped improve reported earnings. The 2017 asset-sale gains included $11.4 million on the sale of securities.
- Investing outflows more than doubled, reflecting aviation equipment acquisitions and property and equipment spending, including Long Ridge.
- At Jefferson Terminal, an ethanol hub began operating in Q4 and a refined-products system entered service in late 2017. Additional crude storage was planned for service in the first half of 2019, subject to development and customer contracts.
Outlook, commentary, risks, and unusual items
- Management said it expected Jefferson Terminal to generate positive Adjusted EBITDA in 2018. It was evaluating potential transactions, but stated that none were definitive or included in planned liquidity needs. No consolidated earnings or revenue guidance was provided.
- Management expected short-term liquidity needs to be met from cash and current operations and said capital and borrowing sources were available for commitments. Future growth may require cash, debt, or equity issuance.
- FTAI identified risks from aviation and infrastructure market cycles, customer defaults and contract renewals, offshore energy weakness and volatile oil prices, development and permitting delays, leverage and refinancing, environmental liabilities, and related-party conflicts. The SoftBank acquisition of Fortress closed in December 2017; the filing noted uncertainty about possible effects on FTAI and its manager relationship.
- Material control weakness: Management and Ernst & Young concluded internal control over financial reporting was ineffective. Deficiencies involved Jefferson segment review of interest capitalization, segregation of accounts-payable and disbursement duties, and documentation of management reviews. Management described remediation steps but could not estimate completion timing. The financial statement audit opinion was unqualified; the auditor’s separate internal-control opinion was adverse.
- Unusual period adjustment: Q4 included a $5.9 million out-of-period interest expense adjustment for interest that should have been expensed in the first nine months; the reported impact on shareholder income was a $3.6 million decrease. Management said it did not consider the adjustment material to prior-period financial position or results.
- Offshore Energy lessees asserted claims for reimbursable expenses or charter adjustments, with a disclosed potential range of $0–$6.58 million; no amount was accrued. The filing said management believed existing and threatened legal matters were not expected to have a material adverse effect.
- After year-end, FTAI raised approximately $128 million net through a January 2018 share offering, issuing 7 million shares, and declared a $0.33-per-share Q4 dividend.
Important facts for investors to verify
- Progress and independent testing of remediation for the Jefferson internal-control material weakness, particularly given the interest-capitalization error.
- Whether operating cash generation can support dividends, debt service, and planned investment without sustained reliance on new financing or asset sales.
- Debt terms, maturities, covenants, and exposure to the 2020 mandatory tender feature on the $144.2 million Series 2016 Bonds.
- Jefferson Terminal contract volumes, throughput recovery, pipeline development, and progress toward management’s 2018 positive Adjusted EBITDA expectation.
- Aircraft and engine lease renewals and utilization, and offshore vessel charter coverage after the construction support vessel’s long-term charter ended in November 2017.
- Resolution of the offshore lessee claims and any environmental, development, or permitting exposures at Repauno and Long Ridge.