Business context and reporting period
FTAI Aviation Ltd. is identified in the request metadata, but the supplied Form 10-Q is for Fortress Transportation and Infrastructure Investors LLC (FTAI). This summary covers FTAI’s unaudited quarter ended March 31, 2016, compared with the quarter ended March 31, 2015. FTAI owns and leases aviation, offshore energy and shipping-container equipment and operates Jefferson Terminal and the Central Maine and Quebec Railway (CMQR).
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where shown.
| Metric | Q1 2016 | Q1 2015 / prior period |
|---|---|---|
| Revenue | $31.5 million | $34.0 million; down 7.4% |
| Net income (loss) attributable to shareholders | $(5.8) million | $5.4 million |
| Basic and diluted EPS | $(0.08) | $0.10 |
| Adjusted Net Income (loss; non-GAAP) | $(6.5) million | $6.9 million |
| Adjusted EBITDA (non-GAAP) | $16.9 million | $29.1 million |
| Net cash from operating activities | $(3.8) million | $6.2 million |
Operating margin was approximately negative 13.0% in Q1 2016, based on operating loss of $9.4 million (revenue less total expenses) divided by revenue; the comparable period had operating income of $0.7 million. Shareholder net margin was approximately negative 18.4%, versus positive 16.0% in Q1 2015.
At March 31, 2016, total assets were $1.606 billion, total liabilities $347.4 million and equity $1.259 billion. Cash and cash equivalents were $347.9 million; restricted cash was $66.0 million and is held in segregated accounts under debt agreements. Debt, net of issuance costs, was $264.3 million, including $8.2 million due within one year. The filing reports no covenant breaches and says FTAI was in compliance with debt covenants at quarter-end.
Investing activities provided $35.5 million, mainly reflecting $71.0 million of proceeds from finance-lease sales, partly offset by equipment and property investments. Financing activities used $65.5 million, including $24.2 million of cash dividends and substantial debt repayments. Cash and cash equivalents declined $33.8 million during the quarter. Management’s non-GAAP Funds Available for Distribution (FAD) was $32.9 million, versus $13.6 million; FAD included asset-sale proceeds and excludes working-capital changes and other items, and is not a substitute for GAAP operating cash flow.
Material changes versus the prior comparable period
- Revenue fell $2.5 million. Equipment-leasing revenue declined $3.5 million, primarily because offshore vessels were off-charter and shipping-container portfolios were sold. Infrastructure revenue rose $0.9 million, including higher rail revenue.
- Aviation Leasing revenue increased $3.7 million, supported by acquired aircraft and engines and more assets on lease. Railroad revenue rose $1.7 million with higher traffic and expanded customer services.
- Offshore Energy revenue dropped $6.4 million; operating expenses increased $3.0 million as vessels went off-charter and FTAI assumed operating costs previously borne by bareboat charterers. The segment recorded a $5.4 million shareholder-attributable loss.
- Total expenses increased $7.6 million, including higher depreciation and amortization, general and administrative costs, management fees and acquisition expenses. The post-IPO management agreement raised quarterly management fees to $4.3 million from $2.4 million.
- Shareholder results also reflected a $1.6 million loss on extinguishment of Jefferson Terminal debt and lower equity earnings from unconsolidated entities, partly offset by $1.7 million in gains on equipment and finance-lease sales.
Outlook, commentary, risks and unusual items
- FTAI said it was evaluating more than $2.0 billion of potential transactions that could occur within 12 months; none were definitive or included in planned liquidity needs. The filing provides no formal earnings or revenue guidance.
- On March 7, FTAI issued $144.2 million of Series 2016 Jefferson Terminal bonds at an initial 7.25% interest rate, refinancing the Jefferson Terminal credit agreement, which was repaid early. The bonds have a stated 2036 maturity and a mandatory tender date in February 2020 if not remarketed or redeemed. The transaction includes standby purchase support and company covenants, including restrictions related to aviation assets and minimum asset-value and equity requirements.
- FTAI sold two shipping-container portfolios during the quarter and used proceeds from asset sales to repay related container loans. It also acquired six commercial jet engines. At quarter-end, aviation equipment utilization was approximately 83%; the ROV support vessel and construction support vessel were off-charter, and the ROV lease had been terminated in February.
- Q1 included a reversal of $4.4 million of previously recognized compensation expense after performance conditions for an award were no longer considered probable. This reduced reported expenses and should be distinguished from recurring operating performance.
- The board declared a $0.33-per-share dividend for Q1, payable May 31, 2016. FTAI states a long-term target payout ratio of 50%–60% of FAD, but emphasizes that dividends are discretionary and may change.
- Key risks include offshore-sector weakness and vessel re-leasing, customer defaults and asset utilization, oil-and-gas market volatility, capital availability and interest rates, environmental and rail regulation, and conflicts of interest arising from external management. One offshore lessee dispute has a stated potential damages range of $0–$3.247 million; no liability was recorded. FTAI also committed to contribute $11.925 million to the MT6015 vessel venture if the partner funds its corresponding contribution and secures a charter.
- After quarter-end, on May 2, Wesley R. Edens resigned as board chairman and director; Joseph P. Adams became chairman and Kenneth J. Nicholson joined the board. CFO/COO Jonathan G. Atkeson resigned effective May 5, and Chief Accounting Officer Scott Christopher was named interim CFO.
Important facts for investors to verify
- Whether offshore vessels return to charter and how that affects segment revenue, operating costs and cash generation.
- The recurring earnings and liquidity picture after separating asset-sale proceeds, the compensation reversal, debt-extinguishment costs and other non-GAAP adjustments.
- The terms, restrictions, refinancing or remarketing requirements, and support obligations associated with the Series 2016 bonds and related agreements.
- Whether the proposed transaction pipeline becomes definitive and how any acquisitions would be funded without impairing liquidity or dividend capacity.
- The sustainability of the $0.33 quarterly dividend: reported operating cash flow was negative, while FAD benefited from asset-sale proceeds and excludes important cash uses.
- The outcome of the offshore lessee claim, the MT6015 funding and charter conditions, and the effect of post-quarter leadership changes.