FTAI Aviation Ltd. (filing registrant: Fortress Transportation and Infrastructure Investors LLC) — Q1 2017 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2017, compared with Q1 2016; balance-sheet comparisons are with December 31, 2016. The company owns and leases transportation equipment and operates infrastructure assets across aviation, offshore energy, shipping containers, terminals, railroads, and ports. Amounts below are in thousands of dollars unless stated otherwise.
Key financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Total revenue | $44,673 | $31,453 |
| Net loss attributable to shareholders | $(4,414); $(0.06) per share | $(5,782); $(0.08) per share |
| Net cash from operating activities | $17,680 | $(3,799) |
| Adjusted EBITDA (non-GAAP) | $22,137 | $12,241 |
| Cash and cash equivalents | $221,222 | $68,055 at Dec. 31, 2016 |
| Restricted cash | $56,032 | $65,441 at Dec. 31, 2016 |
| Debt, net | $495,482 | $259,512 at Dec. 31, 2016 |
| Total assets / total equity | $1,759,098 / $1,136,561 | $1,547,312 / $1,165,680 at Dec. 31, 2016 |
Operating expenses were $21,013, general and administrative costs $3,835, depreciation and amortization $17,377, and interest expense $4,694. Total expenses of $52,264 exceeded revenue; the filing does not present a single defined operating-margin measure. Cash used in investing was $78,800, while financing provided $214,287. The company declared a Q1 dividend of $0.33 per share; cash dividends were $25,013. Management notes operating cash flow has been below shareholder distributions. Non-GAAP Funds Available for Distribution was $21,748, down from $32,858; the company cautions that FAD excludes important items, including acquisition and capital spending.
Material changes versus Q1 2016
- Revenue rose $13,220, mainly from Aviation Leasing: lease income increased with more assets on lease and maintenance revenue increased $7,563. Jefferson Terminal revenue rose with higher volumes; railroad revenue rose with traffic and expanded services.
- Operating expenses increased $6,655, including higher compensation and facility costs. Depreciation and amortization rose $4,160 as the company acquired assets and placed infrastructure into service. These increases partly offset the revenue growth.
- Shareholder net loss narrowed by $1,368. Adjusted EBITDA increased $9,896, while GAAP net loss remained. Results included a $2,456 loss on extinguishment of debt and $2,018 gain on asset sales.
- Cash from operations improved to positive $17,680. Investing outflows increased with aircraft and engine acquisitions, infrastructure spending, and investments. The prior-year period included $71,000 of proceeds from finance-lease sales.
- Debt increased after the March issuance of $250,000 principal amount of 6.75% senior unsecured notes due 2022. Proceeds funded repayment of the $100,000 term loan, fees, and investments; additional proceeds were intended for general corporate purposes and future investments.
Outlook, risks, contingencies, and unusual items
- Outlook: No quantified earnings or revenue guidance is provided. Management said it was evaluating potential infrastructure and equipment-leasing transactions for the following 12 months; none was definitive or included in planned liquidity needs. Management expected short-term liquidity needs to be met with cash on hand and operating cash flow, and said capital and borrowing sources were available as needed.
- Debt and liquidity: The company reported compliance with debt covenants at March 31. The 6.75% senior notes mature in 2022. Jefferson Terminal’s Series 2016 bonds have a mandatory tender date in February 2020 absent remarketing or redemption, with standby purchase and support arrangements. Contractual obligations totaled $780,131, including estimated interest and lease obligations.
- Dividend: On May 4, 2017, the board declared $0.33 per share for Q1, payable May 26. Management states future dividends are discretionary and may change; distributions have exceeded operating cash flow.
- Risk exposure: Risks include aviation utilization and lease renewals, offshore-sector weakness and oil-price volatility, customer defaults, asset values and obsolescence, acquisition competition, leverage and access to capital, regulation and environmental liabilities, and dependence on the external Manager. The filing also notes potential effects from Fortress’s pending merger with SoftBank affiliates and possible conflicts of interest with the Manager.
- Contingencies: Offshore lessees asserted claims for reimbursable expenses; potential damages were estimated at $0 to $10,306, with no amount accrued. A Repauno non-controlling-interest holder may receive contingent payments up to $15,000 if specified service conditions are met. Repauno redevelopment also depends on environmental investigation, remediation, and approvals.
- Other: The company acquired six aircraft and twelve engines and sold one aircraft during Q1. It reported a $4,859 unrealized gain on available-for-sale securities in other comprehensive income. Management reported disclosure controls effective and no material quarterly change in internal control over financial reporting.
Investor verification priorities
- Reconcile the increase in debt and cash with the senior-note issuance, term-loan repayment, and intended investment uses of proceeds.
- Assess whether operating cash flow and the company’s FAD definition support the $0.33 quarterly dividend, given cash distributions exceeded operating cash flow.
- Verify aviation asset utilization, lease maturities, maintenance obligations, and the outlook for the two offshore vessels described as lacking long-term charters.
- Monitor Jefferson Terminal and Repauno operating performance, development spending, environmental work, and the 2020 bond tender arrangements.
- Review the unaccrued offshore claims, contingent Repauno payments, Manager-related fees and conflicts, and the effect of the pending Fortress transaction.