Business context and reporting period
This is an unaudited Form 10-Q for the quarter and nine months ended September 30, 2018. The filing identifies the registrant as Fortress Transportation and Infrastructure Investors LLC—not “FTAI Aviation Ltd.” It owns and leases aviation and offshore-energy equipment and shipping containers, and operates railroad, terminal, port and infrastructure businesses. Unless stated otherwise, dollar figures below are in millions.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $101.2 | $60.4 | $242.0 | $156.2 |
| Consolidated net income (loss) | $0.7 | $(1.7) | $(15.1) | $(16.7) |
| Net income (loss) attributable to shareholders | $4.6 | $3.0 | $4.8 | $(2.9) |
| Adjusted EBITDA (non-GAAP) | $58.8 | $37.8 | $159.1 | $88.7 |
| Net cash provided by operating activities | Not presented quarterly | $86.4 | $52.4 |
Revenue rose about 68% in Q3 and 55% for the nine-month period. Consolidated net margin was approximately 0.7% in Q3 and negative 6.2% for the nine months; shareholder-attributable results differ because consolidated subsidiaries’ non-controlling interests recorded losses. The filing does not provide a single comparable consolidated operating-margin measure. Adjusted EBITDA is non-GAAP.
At September 30, cash and cash equivalents were $163.1 and restricted cash was $22.4. Net debt was $1,137.9, up from $703.3 at year-end 2017; debt due within one year was $72.9. Total assets were $2,473.2, total liabilities $1,410.8 and total equity $1,062.3. The company reported compliance with debt covenants.
Operating cash flow increased to $86.4 from $52.4. Investing activities used $501.6, principally for leasing equipment and property, plant and equipment; financing activities provided $507.9. The company issued $128.5 net proceeds from common shares and paid $82.6 in dividends. Funds Available for Distribution (non-GAAP) was $123.9 versus $130.0; management cautions that FAD excludes, among other items, capital spending and acquisitions and is not a substitute for GAAP cash flow.
Material changes and management commentary
- Aviation Leasing drove much of the growth: nine-month segment revenue was $178.6 versus $110.4. The company reported 197 aviation assets, 87% utilization by equity value, and acquired 18 aircraft and 26 engines during the nine months.
- Infrastructure revenue rose to $56.0 from $34.8 for the nine months. Jefferson Terminal recorded $15.3 of crude-marketing revenue, with related cost of sales contributing to higher expenses. Long Ridge services also contributed to revenue growth.
- Higher depreciation and amortization and interest expense accompanied portfolio expansion: nine-month depreciation and amortization rose $34.5, while interest expense rose $18.6. Total debt increased substantially, including issuance of $300 million of 6.50% senior notes due 2025 in September.
- Jefferson Terminal remained loss-making: its nine-month shareholder-attributable loss was $30.4. Management said it expected positive Adjusted EBITDA in Q4 2018, while noting that some anticipated contracts or volumes had been delayed and that terminal growth depends on contracts, volumes, rail capacity, permits and pipelines.
- Offshore Energy revenue weakened; the construction-support vessel was off lease during 2018. Management identifies lease renewal, customer performance, commodity-market conditions, asset values and access to capital as risks.
Outlook, risks and unusual items
Management said it expected operating subsidiaries to generate cash sufficient for operating expenses and scheduled debt service, and to meet short-term liquidity needs with cash, operating cash flow and financing. It disclosed no formal earnings guidance. The board declared a $0.33-per-share dividend for the quarter, payable November 27, 2018.
Disclosure controls and procedures were not effective as of September 30, 2018 because of a material weakness in internal control over financial reporting previously reported in the 2017 Form 10-K; remediation efforts continued. Other notable exposures include a potential $0–$3.3 loss related to an offshore lessee’s charter obligation, contingent payments of up to $15 million for Repauno and $5 million for Long Ridge, and environmental remediation and redevelopment dependencies at Repauno and Long Ridge. The filing also highlights leverage, refinancing, customer concentration and dividend sustainability risks. One Jefferson Terminal customer represented about 15% of Q3 revenue and 31% of period-end receivables.
Most important facts for investors to verify
- Confirm the issuer/security identity: this filing is for Fortress Transportation and Infrastructure Investors LLC, despite the request metadata naming FTAI Aviation Ltd.
- Assess whether aviation utilization, lease income and maintenance revenue growth can persist, and how much revenue depends on maintenance claims or asset sales.
- Track Jefferson Terminal contract and volume ramp-up, crude-marketing economics, pipeline and rail access, permitting, and progress toward management’s Q4 Adjusted EBITDA expectation.
- Review debt maturities, refinancing and covenant headroom, interest-rate exposure, and the effect of rising debt service on liquidity and dividends.
- Evaluate cash available after capital expenditures and acquisitions; compare the dividend with GAAP operating cash flow and recognize FAD’s stated limitations.
- Follow remediation of the material weakness and environmental obligations, and monitor concentrated customer receivables and the offshore vessel’s lease status.