10-QPeriod: Q1 FY2018

FTAI Aviation Ltd. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 4, 2018For Securities:FTAIFTAIMFTAIN

Summary

FTAI Aviation Ltd. (FTAI) is navigating a significant transition period as it fully matures into its role as a public company. Having ceased to be an "emerging growth company" at the end of 2017, FTAI is now subject to more stringent SEC reporting requirements, including the full attestation of internal controls over financial reporting by its independent auditor under Section 404 of the Sarbanes-Oxley Act. This transition may lead to increased costs and potential identification of control deficiencies, which could impact financial condition and liquidity. Furthermore, the company can no longer utilize certain exemptions previously afforded to emerging growth companies, potentially affecting the perceived attractiveness of its shares to some investors due to enhanced disclosure obligations, particularly around executive compensation. Investors should be aware of the potential for future dilution of their ownership stake. FTAI has a robust Incentive Plan that allows for equity awards to its Manager and other service providers, with provisions for increasing the number of shares reserved under the plan in connection with future equity offerings. The company also utilizes leverage to finance acquisitions, which, while a common strategy, exposes it to increased financing costs and potentially reduces funds available for distributions. While currently intending to pay quarterly dividends, FTAI emphasizes that this policy is at the discretion of its board and subject to various factors, including operating results and financing agreement restrictions.

Financial Highlights

43 data points
Beta

Revenue

$57.80M

Net Income

-$572K

-1.0% Net Margin

EPS (Diluted)

$-0.01

Total Assets

$2.05B

Cash & Equivalents

$106.74M

Free Cash Flow

-$12.17M

Financial Statements
Beta
Revenue$57.80M
Operating Expenses$69.77M
Interest Expense$11.87M
Net Income-$572K
EPS (Basic)$-0.01
EPS (Diluted)$-0.01
Shares Outstanding (Basic)81.53M
Shares Outstanding (Diluted)81.53M

Key Highlights

  • 1FTAI has lost its "emerging growth company" status, subjecting it to full Sarbanes-Oxley Section 404 compliance, including independent auditor attestation on internal controls.
  • 2The company anticipates potential increased costs and the possibility of identifying control deficiencies as a result of the enhanced compliance requirements.
  • 3FTAI will now face enhanced disclosure obligations regarding executive compensation and shareholder votes, which were previously exempt.
  • 4There is a stated risk of future dilution to existing shareholders due to equity awards granted under the Incentive Plan and future offerings.
  • 5The company uses leverage for acquisitions, which can increase financing costs and reduce funds available for distributions.
  • 6Dividend policy is discretionary and may be changed at any time; net cash from operations has been less than distributions.
  • 7Anti-takeover provisions in the operating agreement and Delaware law may make it more difficult for a change of control.

Frequently Asked Questions

As FTAI is no longer an "emerging growth company," it must fully comply with Sarbanes-Oxley Section 404, including having its internal controls over financial reporting audited by an independent registered public accounting firm. This will likely increase compliance costs. Additionally, FTAI loses exemptions from enhanced disclosure requirements, particularly concerning executive compensation, and will be subject to non-binding advisory votes on executive pay and shareholder approval for golden parachute payments.

Your ownership percentage could be diluted due to equity awards granted under the company's Incentive Plan, particularly to its Manager. The plan includes provisions to increase the number of shares reserved for issuance in connection with future equity offerings. Furthermore, future debt or equity issuances for financing or acquisitions could also lead to dilution and potentially negatively impact the market price of common shares.

FTAI uses leverage to finance asset acquisitions, which can increase financing costs and reduce the return on assets and funds available for distribution. While the company currently intends to pay regular quarterly dividends, this policy is discretionary and can be changed by the board of directors. The company aims for a long-term payout ratio of 50-60% of funds available for distribution, with the remainder for funding future acquisitions. However, net cash from operations has been less than distributions, and the ability to pay dividends is also dependent on cash received from subsidiaries, which may be limited by their financing agreements.

Yes, FTAI's operating agreement and Delaware law include anti-takeover provisions. These may include a staggered board, advance notice requirements for shareholder proposals, limitations on convening shareholder meetings, and the authorization to issue preferred stock. These provisions could make it more difficult and expensive for a third party to acquire control of the company.