FTAI Infrastructure (FIP) - 2023 Q4 - Annual Report

Part I Business FTAI Infrastructure Inc. acquires and operates critical infrastructure assets across four primary business lines, with Railroad and Ports and Terminals driving 2023 revenue - The company operates through four main business lines: Railroad, Ports and Terminals, Power and Gas, and Sustainability and Energy Transition[17] FY 2023 Revenue Contribution by Business Line | Business Line | Revenue Contribution (%) | | :--- | :--- | | Railroad | 53% | | Ports and Terminals | 26% | | Corporate and other | 21% | - The company is externally managed by FIG LLC, an affiliate of Fortress Investment Group LLC, receiving an annual management fee of 1.50% of average total equity[23] - In FY 2023, the largest customer accounted for 51% of total revenue and 30% of total accounts receivable[46] Our Portfolio The company's portfolio is structured across its primary business lines, encompassing railroads, multi-modal terminals, power generation, and green technology investments - Railroad: Includes six short-line freight railroads under Transtar, with a 15-year exclusive strategic rail partnership with U.S. Steel Corporation[24][26][27] - Ports and Terminals: Features Jefferson Terminal with 6.2 million barrels of storage and Repauno, a 1,600-acre deep-water port with underground storage[28][30][32] - Power and Gas: Consists of an equity investment in Long Ridge Energy & Power, operating a 485 MW combined-cycle power plant and developing hydrogen blending capabilities[33][34] - Sustainability and Energy Transition: Focuses on green technology investments such as lithium-ion battery recycling (Aleon), waste-to-fuel conversion (Clean Planet USA), and carbon capture (CarbonFree)[37][40][41] Risk Factors The company faces diverse risks related to business operations, capital structure, external management, spin-off, and common stock, compounded by a material internal control weakness - Business Risks: Exposure to macroeconomic conditions, industry oversupply, competition, and significant customer concentration, with one Railroad customer accounting for 51% of 2023 revenue[303][305][93] - Internal Control Weakness: A material weakness was identified in internal control over financial reporting regarding the review of cash flow projections for the Jefferson Terminal goodwill impairment test as of October 1, 2023[93] - Manager-related Risks: Dependence on its external manager, an affiliate of Fortress, creates potential conflicts of interest due to overlapping investment objectives[99][100][102] - Capital Structure Risks: Restrictive debt covenants and Series A Redeemable Preferred Stock obligations may limit flexibility, with potential for preferred stockholders to elect a majority of the board if cash dividends are not paid after August 1, 2024[85][96][98] - Spin-off Risks: Potential failure to achieve expected benefits from the spin-off from FTAI and conflicts of interest due to overlapping directors and officers[105][109] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None reported[132] Cybersecurity The company's cybersecurity is overseen by the CEO and managed by the Manager's ISSC, utilizing third-party risk assessments, with no material impact from threats to date - Cybersecurity is overseen by the CEO and managed by the Manager's Information Security Steering Committee (ISSC), which formulates and implements policies[132] - Third-party advisors are engaged for risk assessments using standards like the NIST framework to inform cybersecurity controls[132] - To date, cybersecurity threats have not materially affected the company's business, operations, or financial condition[134] Properties The company's principal executive offices are in New York, NY, with key properties including leased and owned land for terminal and railroad operations across multiple states - The company's main properties include leased and owned land for its terminal and railroad operations across multiple states, including Texas, New Jersey, Pennsylvania, and Indiana[136] Legal Proceedings The company is involved in ordinary course legal proceedings, with no expected material adverse effect on its business or financial position - Management does not expect current legal proceedings to have a material adverse effect on the company[137] Mine Safety Disclosures This item is not applicable to the company - Not applicable[137] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ, with management planning to eliminate future common stock dividends to address liquidity risk, and an incentive plan with available shares for issuance - Common stock trades on NASDAQ under the symbol "FIP" since August 1, 2022[141] - A $0.03 per share cash dividend for Q4 2023 was declared, but future common stock dividends are planned for elimination to manage liquidity[141] - The company's Incentive Plan has 25,177,237 securities remaining available for future issuance as of December 31, 2023[142] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operations, noting increased FY 2023 revenues and Adjusted EBITDA, a widened net loss, and a plan to address liquidity risk Results of Operations Total revenues increased by $58.5 million in 2023, driven by rail and terminal services, while net loss widened and Adjusted EBITDA significantly grew to $107.5 million Consolidated Results of Operations | Metric | 2023 (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | :--- | | Total Revenues | $320,472 | $261,966 | $120,219 | | Total Expenses | $364,847 | $319,605 | $191,758 | | Net Loss | $(159,750) | $(187,517) | $(106,341) | | Net Loss Attributable to Stockholders | $(183,736) | $(177,241) | $(79,869) | Adjusted EBITDA Reconciliation (Non-GAAP) | Metric | 2023 (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | :--- | | Net loss attributable to stockholders | $(183,736) | $(177,241) | $(79,869) | | Adjusted EBITDA (Non-GAAP) | $107,522 | $61,028 | $33,711 | - 2023 vs. 2022: Revenue increased by $58.5 million, driven by higher rail, terminal, and roadside services revenue, while interest expense rose by $46.4 million[163][166] - 2022 vs. 2021: Revenue increased by $141.7 million, primarily due to the Transtar acquisition adding $86.3 million in rail revenue and the FYX acquisition adding $47.9 million in roadside services revenue[167] Segment Results In 2023, Railroad and Jefferson Terminal segments showed significant Adjusted EBITDA growth, Repauno's loss narrowed, Power and Gas increased, while Sustainability's loss widened due to developmental stage investments Adjusted EBITDA by Segment (Non-GAAP) | Segment | 2023 (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | :--- | | Railroad | $78,521 | $64,286 | $26,449 | | Jefferson Terminal | $35,694 | $18,490 | $10,631 | | Repauno | $(8,061) | $(12,743) | $(4,149) | | Power and Gas | $34,784 | $18,039 | $25,524 | | Sustainability and Energy Transition | $(7,253) | $(2,334) | $(372) | | Corporate and Other | $(26,163) | $(24,710) | $(24,372) | | Total Adjusted EBITDA | $107,522 | $61,028 | $33,711 | Liquidity and Capital Resources The company addresses liquidity risk from an upcoming $79.1 million bond maturity with a plan including refinancing and dividend elimination, alongside improved 2023 operating cash flow - Management identified a liquidity risk from the January 2025 maturity of $79.1 million in bonds and has a plan including refinancing, delaying capital expenditures, and eliminating common dividends[237] Historical Cash Flow | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $5,513 | $(42,690) | $(61,716) | | Net cash used in investing activities | $(147,123) | $(267,266) | $(828,716) | | Net cash provided by financing activities | $79,447 | $157,743 | $1,136,866 | - As of December 31, 2023, outstanding principal and interest payment obligations were $1.4 billion and $531.3 million, respectively[251] Application of Critical Accounting Policies Critical accounting policies include goodwill impairment testing, with the Jefferson Terminal reporting unit's fair value exceeding carrying value by 10-20%, indicating sensitivity to assumptions - Goodwill impairment testing is a critical accounting estimate, with the Jefferson Terminal reporting unit's fair value exceeding its carrying value by 10-20% as of October 1, 2023, indicating sensitivity to future performance[255][307] - No goodwill impairments were recorded for the years ended December 31, 2023, 2022, and 2021[255][307] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on variable-rate debt, with a 100-basis point change impacting annual interest expense by approximately $1.3 million - The company's main market risk is interest rate risk from variable-rate debt[258][259] - A hypothetical 100-basis point change in variable interest rates would impact annual interest expense by approximately $1.3 million[260] Financial Statements and Supplementary Data This section presents the company's audited financial statements and the auditor's report, which includes an unqualified opinion on financials but an adverse opinion on internal controls due to a material weakness - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the financial statements[265] - The auditor issued an adverse opinion on internal control over financial reporting as of December 31, 2023, due to a material weakness in the goodwill impairment process for the Jefferson Terminal reporting unit[422] Consolidated Balance Sheet Highlights | Account | Dec 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $2,379,609 | $2,478,399 | | Total Liabilities | $1,641,518 | $1,689,015 | | Redeemable preferred stock | $325,232 | $264,590 | | Total Equity | $412,859 | $524,794 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[413] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2023, due to a material weakness in goodwill impairment analysis, with a remediation plan underway - Management concluded disclosure controls and procedures were not effective due to a material weakness[414] - A material weakness was identified in the review of cash flow projections and key assumptions for the Jefferson Terminal goodwill impairment analysis[415] - A remediation plan is underway, focusing on more rigorous review procedures, but its effectiveness has not yet been confirmed[416] Other Information The company reports no other information under this item - None[426] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 definitive proxy statement[428] Executive Compensation Information for this item is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 definitive proxy statement[428] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 definitive proxy statement[429] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 definitive proxy statement[430] Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 definitive proxy statement[430] Part IV Exhibits This section lists all exhibits filed as part of the Form 10-K, including key agreements and certifications - Lists all exhibits filed with the Form 10-K, including key agreements and certifications[432] Form 10-K Summary This item is noted as 'None' in the report, indicating no summary is provided here - None[437]