FTAI Infrastructure Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand the infrastructure business of FTAI before giving effect to the spin-off (the “Company,” “FTAI Infrastructure,” “we,” “our” or “us”). Our MD&A should be read in conjunction with our unaudited Combined Consolidated Financial Statements and the accompanying notes, and with Part II, Item 1A, “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. Overview We are in the business of acquiring, developing and operating assets and businesses that represent critical infrastructure for customers in the transportation and energy industries. We were formed as FTAI Infrastructure LLC, a Delaware limited liability company and subsidiary of FTAI, on December 13, 2021. Prior to the completion of the spin-off, as described below, we converted into FTAI Infrastructure Inc., a Delaware corporation, and hold all the material assets and investments that comprise FTAI's infrastructure business. Prior to the spin-off, we were a subsidiary of FTAI, which is a Nasdaq-listed company that is externally managed and advised by our Manager. Our operations consist of three primary business lines: (i) Ports and Terminals, (ii) Railroads and (iii) companies and assets participating in global Energy Transition. Our Ports and Terminals business develops or acquires industrial properties in strategic locations that store and handle for third parties a variety of energy products including crude oil, refined products and clean fuels. In certain cases, we also develop and operate facilities, such as a 485 megawatt power plant at our Long Ridge terminal in Ohio through our equity method investment, that leverage the property’s location and key attributes to generate incremental value. Our Railroads business primarily invests in and operates short line and regional railroads in North America. Our Energy Transition business focuses on investments in companies and assets that utilize green technology, produce sustainable fuels and products, or enable customers to reduce their carbon footprint. We expect to continue to invest in such market sectors, and pursue additional investment opportunities in other infrastructure businesses and assets we believe to be attractive and meet our investment objectives. Our team focuses on acquiring a diverse group of long-lived assets or operating businesses that provide mission-critical services or functions to infrastructure networks and typically have high barriers to entry, strong margins, stable cash flows and upside from earnings growth and asset appreciation driven by increased use and inflation. We believe that there are a large number of acquisition opportunities in our markets and that our Manager’s expertise and business and financing relationships, together with our access to capital and generally available capital for infrastructure projects in today’s marketplace, will allow us to take advantage of these opportunities. As of June 30, 2022, we had total consolidated assets of $2.6 billion and total equity of $1.3 billion. Spin-Off of FTAI Infrastructure On August 1, 2022, FTAI distributed to the holders of FTAI common shares as of July 21, 2022 one share of FTAI Infrastructure Inc. common stock for each FTAI common share held. FTAI Infrastructure was spun out in an entity taxed as a corporation for U.S. federal income tax purposes and holds FTAI’s (i) Jefferson Terminal business, (ii) Repauno business, (iii) Long Ridge investment (iv) Transtar business, (v) Aleon and Gladieux investment, (vi) KRS business, (vii) Clean Planet USA investment, (viii) FYX business, (ix) CarbonFree business, and (x) Containers business. FTAI Infrastructure retained all related project-level debt of those entities. In connection with the spin-off, FTAI Infrastructure entered into subscription agreements to issue $300.0 million of preferred stock and warrants and sold $500.0 million of 10.500% senior secured notes due 2027, the net proceeds of which were remitted to FTAI in connection with the separation. FTAI Infrastructure is externally managed by the Manager. In connection with the spin-off, FTAI Infrastructure Inc. entered into a management agreement with the Manager, an affiliate of Fortress, with substantially the same terms as the previously held management agreement between the Parent and the Manager. The management agreement has an initial term of six years. The Manager will be entitled to a management fee, incentive allocations (comprised of income incentive allocation and capital gains incentive allocation) and reimbursement of certain expenses on substantially similar terms as the existing arrangements with the Manager, except that all fees will be paid pursuant to the amended and restated management agreement rather than by one of FTAI Infrastructure’s subsidiaries. Impact of COVID-19 The ongoing COVID-19 pandemic has adversely affected our Jefferson Terminal business in several material ways since 2020. In particular, although difficult to quantify the impact, the pandemic adversely affected macro trends in refinery utilization rates in the United States and the global consumption of petroleum and liquid fuels in 2020 and part of 2021, which adversely affected our revenues for our Jefferson Terminal business. In addition, we were unable to complete certain new customer contracts and certain of our existing customers did not increase volumes as anticipated which also adversely affected our revenues for those periods. Recently, however, we have seen the activity starting to normalize and Jefferson Terminal crude throughput is expected to ramp back to pre-pandemic levels in 2022. Due to the outbreak of COVID-19, we have taken measures to protect the health and safety of our employees, including having employees work remotely, where possible. As COVID-19 continues to evolve, the extent to which COVID-19 impacts operations 48 will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to try and contain COVID-19 or treat its impact. We continue to monitor the pandemic and, the extent to which the continued spread of the virus adversely affects our customer base and therefore revenue. As the COVID-19 pandemic is complex and rapidly evolving, our plans as described above may change. At this point, we cannot reasonably estimate the duration and severity of this pandemic, which could have a material adverse impact on our business, results of operations, financial position and cash flows. For additional detail, see “Risk Factors—A pandemic, including COVID-19, could have an adverse impact on our business, financial condition, and results of operations.” Operating Segments Our reportable segments represent strategic business units comprised of investments in different types of transportation and infrastructure assets. We have three reportable segments which operate in infrastructure businesses across several market sectors. Our reportable segments are (i) Jefferson Terminal, (ii) Ports and Terminals and (iii) Transtar. The Jefferson Terminal segment consists of a multi-modal crude oil and refined products terminal and other related assets. The Ports and Terminals segment consists of Repauno, which is a 1,630 acre deep-water port located along the Delaware River with an underground storage cavern and multiple industrial development opportunities, and an equity method investment in Long Ridge, which is a 1,660 acre multi-modal port located along the Ohio River with rail, dock, and multiple industrial development opportunities, including a power plant. The Transtar segment consists of five freight railroads and one switching company, of which two railroads are connected to US Steel's largest production facilities. Corporate and Other primarily consists of corporate general and administrative expenses, and management fees, all allocated from the Parent. Additionally, Corporate and Other currently includes (i) Containers, (ii) investments in Aleon, Gladieux, and Clean Planet USA, (iii) a note receivable from CarbonFree (iv) KRS and (v) an operating company that provides roadside assistance services for the intermodal and over-the-road trucking industries. Our Manager On December 27, 2017, SoftBank Group Corp. (“SoftBank”) completed its acquisition of Fortress (the “SoftBank Merger”). In connection with the Softbank Merger, Fortress operates within SoftBank as an independent business headquartered in New York. Results of Operations Adjusted EBITDA (Non-GAAP) The chief operating decision maker (“CODM”) utilizes Adjusted EBITDA as the key performance measure. Adjusted EBITDA is not a financial measure in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). This performance measure provides the CODM with the information necessary to assess operational performance, as well as make resource and allocation decisions. We believe Adjusted EBITDA is a useful metric for investors and analysts for similar purposes of assessing our operational performance. Adjusted EBITDA is defined as net income (loss) attributable to Parent, adjusted (a) to exclude the impact of provision for (benefit from) income taxes, equity-based compensation expense, acquisition and transaction expenses, losses on the modification or extinguishment of debt and capital lease obligations, changes in fair value of non-hedge derivative instruments, asset impairment charges, incentive allocations, depreciation and amortization expense, and interest expense, (b) to include the impact of our pro-rata share of Adjusted EBITDA from unconsolidated entities, and (c) to exclude the impact of equity in earnings (losses) of unconsolidated entities and the non-controlling share of Adjusted EBITDA. 49 Comparison of the three and six months ended June 30, 2022 and 2021 The following table presents our combined consolidated results of operations: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Revenues Lease income $ 867 $ 432 $ 435 $ 1,707 $ 862 $ 845 Rail revenues 37,507 — 37,507 71,175 — 71,175 Terminal services revenues 14,227 11,120 3,107 27,011 21,541 5,470 Other revenue 13,267 3,792 9,475 12,123 13,483 (1,360) Total revenues 65,868 15,344 50,524 112,016 35,886 76,130 Expenses Operating expenses 49,229 17,309 31,920 87,297 34,118 53,179 General and administrative 2,498 1,631 867 4,928 3,665 1,263 Acquisition and transaction expenses 8,872 2,560 6,312 13,108 3,518 9,590 Management fees and incentive allocation to affiliate 3,065 3,817 (752) 7,226 7,415 (189) Depreciation and amortization 17,319 11,686 5,633 34,315 21,769 12,546 Total expenses 80,983 37,003 43,980 146,874 70,485 76,389 Other expense Equity in losses of unconsolidated entities (13,859) (6,811) (7,048) (35,902) (7,264) (28,638) Gain on sale of assets, net — 16 (16) — 16 (16) Interest expense (6,486) (3,529) (2,957) (12,945) (5,012) (7,933) Other expense (553) (792) 239 (1,012) (611) (401) Total other expense (20,898) (11,116) (9,782) (49,859) (12,871) (36,988) Loss from before income taxes (36,013) (32,775) (3,238) (84,717) (47,470) (37,247) Provision for (benefit from) income taxes 1,947 (715) 2,662 3,531 (1,121) 4,652 Net loss (37,960) (32,060) (5,900) (88,248) (46,349) (41,899) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (8,480) (6,625) (1,855) (15,946) (11,586) (4,360) Net loss attributable to Parent $ (29,480) $ (25,435) $ (4,045) $ (72,302) $ (34,763) $ (37,539) 50 The following table sets forth a reconciliation of net loss attributable to Parent to Adjusted EBITDA: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Net loss attributable to Parent $ (29,480) $ (25,435) $ (4,045) $ (72,302) $ (34,763) $ (37,539) Add: Provision for (benefit from) income taxes 1,947 (715) 2,662 3,531 (1,121) 4,652 Add: Equity-based compensation expense 956 1,439 (483) 1,665 2,553 (888) Add: Acquisition and transaction expenses 8,872 2,560 6,312 13,108 3,518 9,590 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — — — Add: Changes in fair value of non-hedge derivative instruments (1,514) 1,391 (2,905) (748) (6,573) 5,825 Add: Asset impairment charges — — — — — — Add: Incentive allocations — — — — — — Add: Depreciation and amortization expense (1) 17,319 11,686 5,633 34,315 21,769 12,546 Add: Interest expense 6,486 3,529 2,957 12,945 5,012 7,933 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) 6,825 225 6,600 12,232 2,985 9,247 Less: Equity in losses of unconsolidated entities 13,859 6,811 7,048 35,902 7,264 28,638 Less: Non-controlling share of Adjusted EBITDA (3) (3,716) (3,257) (459) (7,532) (5,286) (2,246) Adjusted EBITDA (non-GAAP) $ 21,554 $ (1,766) $ 23,320 $ 33,116 $ (4,642) $ 37,758 ________________________________________________________ (1) Includes the following items for the three months ended June 30, 2022 and 2021: (i) depreciation and amortization expense of $17,319 and $11,686, respectively. Includes the following items for the six months ended June 30, 2022 and 2021: (i) depreciation and amortization expense of $34,315 and $21,769, respectively. (2) Includes the following items for the three months ended June 30, 2022 and 2021: (i) net loss of $(13,919) and $(7,010), (ii) interest expense of $6,795 and $288, (iii) depreciation and amortization expense of $6,349 and $1,845, (iv) acquisition and transaction expenses of $387 and $0 and (v) changes in fair value of non-hedge derivative instruments of $7,118 and $5,078, respectively. Includes the following items for the six months ended June 30, 2022 and 2021: (i) net loss of $(36,007) and $(5,492), (ii) interest expense of $13,258 and $527, (iii) depreciation and amortization expense of $12,633 and $3,725, (iv) acquisition and transaction expenses of $391 and $—, (v) changes in fair value of non-hedge derivative instruments of $21,732 and $4,201 and (vi) asset impairment of $32 and $24, respectively. (3) Includes the following items for the three months ended June 30, 2022 and 2021: (i) equity-based compensation of $124 and $292, (ii) provision for income taxes of $14 and $13, (iii) interest expense of $1,319 and $732, (iv) depreciation and amortization expense of $2,321 and $2,172 and (v) changes in fair value of non-hedge derivative instruments of $(62) and $48, respectively. Includes the following items for the six months ended June 30, 2022 and 2021: (i) equity based compensation of $250 and $490, (ii) provision for income taxes of $30 and $26, (iii) interest expense of $2,703 and $1,013, (iv) depreciation and amortization expense of $4,585 and $3,983, and (v) changes in fair value of non-hedge derivative instruments of $(36) and $(226), respectively. Comparison of the three months ended June 30, 2022 and 2021 Total revenues increased $50.5 million primarily due to higher revenues of $38.1 million in the Transtar segment and $10.2 million in the Corporate segment, partially offset by lower revenues of $0.7 million in the Ports and Terminals segment. Rail revenues increased $37.5 million due to our acquisition of Transtar in July 2021. Other revenue increased $9.5 million, primarily due to the acquisition of a majority stake in and consolidation of FYX during the quarter. Comparison of the six months ended June 30, 2022 and 2021 Total revenues increased $76.1 million, primarily due to higher revenues of $72.1 million in the Transtar segment, $10.2 million attributable to the acquisition and consolidation of FYX, partially offset by lower revenues of $10.8 million in the Ports and Terminals segment. Rail revenues increased $71.2 million due to our acquisition of Transtar in July 2021. Other revenue decreased $1.4 million, primarily due to a loss on butane forward purchase and sale contracts at Repauno, partially offset by the acquisition of a majority stake in and consolidation of FYX during the second quarter. Expenses Comparison of the three months ended June 30, 2022 and 2021 Total expenses increased $44.0 million, primarily due to higher (i) operating expenses, (ii) depreciation and amortization and (iii) acquisition and transaction expenses. 51 Operating expenses increased $31.9 million which primarily reflects: • an increase of $12.3 million in compensation and benefits primarily due to the acquisition of Transtar in July 2021; • an increase of $8.2 million in facility operating expense which primarily reflects (i) an increase of $6.9 million due to the acquisition of Transtar in July 2021 and (ii) an increase of $1.3 million in the Jefferson Terminal segment due to increased activity; • an increase of $7.5 million in cost of sales primarily related to the consolidation of FYX during the second quarter of 2022; and • an increase of $3.2 million in repairs and maintenance expense primarily due to the acquisition of Transtar in July 2021. Depreciation and amortization increased $5.6 million primarily due to (i) the acquisition of Transtar in July 2021 and (ii) assets placed into service at Jefferson Terminal. Acquisition and transaction expenses increased $6.3 million primarily due to professional fees related to strategic transactions. Comparison of the six months ended June 30, 2022 and 2021 Total expenses increased $76.4 million, primarily due to higher (i) operating expenses, (ii) depreciation and amortization and (iii) acquisition and transaction expenses. Operating expenses increased $53.2 million which primarily reflects: • an increase of $23.8 million in compensation and benefits primarily due to the acquisition of Transtar in July 2021; • an increase of $14.5 million in facility operating expense which primarily reflects (i) an increase of $12.1 million due to the acquisition of Transtar in July 2021 and (ii) an increase of $2.7 million in the Jefferson Terminal segment due to increased activity; • an increase of $7.5 million in cost of sales primarily related to the consolidation of FYX during the second quarter of 2022; and • an increase of $3.7 million in repairs and maintenance expense primarily due to the acquisition of Transtar in July 2021. Depreciation and amortization increased $12.5 million primarily due to (i) assets placed into service at Repauno and Jefferson Terminal and (ii) the acquisition of Transtar in July 2021. Acquisition and transaction expenses increased $9.6 million primarily due to professional fees related to strategic transactions. Other expense Total other expense increased $9.8 million during the three months ended June 30, 2022 which primarily reflects (i) an increase of $7.0 million in equity in losses of unconsolidated entities primarily due to unrealized losses on power swaps at Long Ridge and (ii) an increase of $3.0 million in interest expense primarily due to an increase of interest expense of $2.9 million at Jefferson Terminal due to the issuance of the Series 2021 Bonds in August 2021 and additional borrowings related to the EB05 Loan Agreement. Total other expense increased $37.0 million during the six months ended June 30, 2022, which primarily reflects (i) an increase of $28.6 million in equity in losses of unconsolidated entities primarily due to unrealized losses on power swaps at Long Ridge and (ii) an increase of $7.9 million in interest expense primarily due to an increase of interest expense of $7.8 million at Jefferson Terminal due to the issuance of the Series 2021 Bonds in August 2021 and additional borrowings related to the EB05 Loan Agreement. Net loss Net loss increased $5.9 million and $41.9 million during the three and six months ended June 30, 2022, respectively, primarily due to the changes noted above. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $23.3 million and $37.8 million during the three and six months ended June 30, 2022, respectively, primarily due to the changes noted above. 52 Jefferson Terminal Segment The following table presents our results of operations: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Revenues Lease income $ 314 $ 432 $ (118) $ 666 $ 862 $ (196) Terminal services revenues 14,214 11,095 3,119 26,908 21,384 5,524 Total revenues 14,528 11,527 3,001 27,574 22,246 5,328 Expenses Operating expenses 14,261 11,777 2,484 27,384 23,498 3,886 Depreciation and amortization 9,739 9,315 424 19,439 17,033 2,406 Total expenses 24,000 21,092 2,908 46,823 40,531 6,292 Other expense Interest expense (6,127) (3,213) (2,914) (12,237) (4,416) (7,821) Other expense (1,291) (886) (405) (1,390) (705) (685) Total other expense (7,418) (4,099) (3,319) (13,627) (5,121) (8,506) Loss before income taxes (16,890) (13,664) (3,226) (32,876) (23,406) (9,470) Provision for income taxes 68 59 9 137 115 22 Net loss (16,958) (13,723) (3,235) (33,013) (23,521) (9,492) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (8,135) (6,538) (1,597) (15,271) (11,554) (3,717) Net loss attributable to Parent $ (8,823) $ (7,185) $ (1,638) $ (17,742) $ (11,967) $ (5,775) 53 The following table sets forth a reconciliation of net loss attributable to Parent to Adjusted EBITDA: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Net loss attributable to Parent $ (8,823) $ (7,185) $ (1,638) $ (17,742) $ (11,967) $ (5,775) Add: Provision for income taxes 68 59 9 137 115 22 Add: Equity-based compensation expense 538 1,270 (732) 1,076 2,111 (1,035) Add: Acquisition and transaction expenses — — — — — — Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — — — Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — — — — — — Add: Incentive allocations — — — — — — Add: Depreciation and amortization expense 9,739 9,315 424 19,439 17,033 2,406 Add: Interest expense 6,127 3,213 2,914 12,237 4,416 7,821 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — — — — Less: Equity in earnings of unconsolidated entities — — — — — — Less: Non-controlling share of Adjusted EBITDA (1) (3,491) (3,117) (374) (7,183) (5,325) (1,858) Adjusted EBITDA (non-GAAP) $ 4,158 $ 3,555 $ 603 $ 7,964 $ 6,383 $ 1,581 ________________________________________________________ (1) Includes the following items for the three months ended June 30, 2022 and 2021: (i) equity-based compensation of $115 and $286, (ii) provision for income taxes of $14 and $13, (iii) interest expense of $1,299 and $722 and (iv) depreciation and amortization expense of $2,063 and $2,096, respectively. Includes the following items for the six months ended June 30, 2022 and 2021: (i) equity-based compensation of $235 and $475, (ii) provision for income taxes of $30 and $26, (iii) interest expense of $2,673 and $993, and (iv) depreciation and amortization expense of $4,245 and $3,831, respectively. Revenues Total revenues increased $3.0 million during the three months ended June 30, 2022 which reflects an increase in terminal services revenue of $3.1 million primarily due to higher volumes. Total revenues increased $5.3 million during the six months ended June 30, 2022 which reflects an increase in terminal services revenue of $5.5 million primarily due to higher volumes. Expenses Total expenses increased $2.9 million during the three months ended June 30, 2022, which reflects: • an increase in operating expenses of $2.5 million primarily due to increased terminal activity; and • an increase in depreciation and amortization of $0.4 million due to additional assets being placed into service. Total expenses increased $6.3 million during the six months ended June 30, 2022, which reflects: • an increase in operating expenses of $3.9 million primarily due to increased terminal activity; and • an increase in depreciation and amortization of $2.4 million due to additional assets being placed into service. Other expense Other expense increased $3.3 million during the three months ended June 30, 2022, which reflects an increase of $2.9 million due to the issuance of the Series 2021 Bonds in August 2021 and additional borrowings related to the EB-5 Loan Agreement. Other expense increased $8.5 million during the six months ended June 30, 2022, which reflects an increase of $7.8 million due to the issuance of the Series 2021 Bonds in August 2021 and additional borrowings related to the EB-5 Loan Agreement. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $0.6 million and $1.6 million during the three and six months ended June 30, 2022, respectively, primarily due to the changes noted above. 54 Ports and Terminals The following table presents our results of operations: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Revenues Rail revenues $ — $ — $ — $ 86 $ — $ 86 Terminal services revenues 13 25 (12) 103 157 (54) Other revenue 1,627 2,318 (691) (535) 10,282 (10,817) Total revenues 1,640 2,343 (703) (346) 10,439 (10,785) Expenses Operating expenses 4,283 3,828 455 8,166 6,930 1,236 Depreciation and amortization 2,376 2,216 160 4,745 4,427 318 Total expenses 6,659 6,044 615 12,911 11,357 1,554 Other expense Equity in losses of unconsolidated entities (12,971) (9,183) (3,788) (34,352) (7,641) (26,711) Gain on sale of equipment, net — 16 (16) — 16 (16) Interest expense (341) (295) (46) (628) (574) (54) Other income — 91 (91) — 91 (91) Total other expense (13,312) (9,371) (3,941) (34,980) (8,108) (26,872) Loss before income taxes (18,331) (13,072) (5,259) (48,237) (9,026) (39,211) Benefit from income taxes — (774) 774 — (1,236) 1,236 Net loss (18,331) (12,298) (6,033) (48,237) (7,790) (40,447) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (320) (87) (233) (650) (32) (618) Net loss attributable to Parent $ (18,011) $ (12,211) $ (5,800) $ (47,587) $ (7,758) $ (39,829) 55 The following table sets forth a reconciliation of net loss attributable to Parent to Adjusted EBITDA: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Net loss attributable to Parent $ (18,011) $ (12,211) $ (5,800) $ (47,587) $ (7,758) $ (39,829) Add: Benefit from income taxes — (774) 774 — (1,236) 1,236 Add: Equity-based compensation expense 150 169 (19) 321 442 (121) Add: Acquisition and transaction expenses — — — — — — Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — — — Add: Changes in fair value of non-hedge derivative instruments (1,514) 1,391 (2,905) (748) (6,573) 5,825 Add: Asset impairment charges — — — — — — Add: Incentive allocations — — — — — — Add: Depreciation and amortization expense 2,376 2,216 160 4,745 4,427 318 Add: Interest expense 341 295 46 628 574 54 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) 7,472 246 7,226 13,567 2,951 10,616 Less: Equity in losses of unconsolidated entities 12,971 9,183 3,788 34,352 7,641 26,711 Less: Non-controlling share of Adjusted EBITDA (2) (110) (140) 30 (234) 39 (273) Adjusted EBITDA (non-GAAP) $ 3,675 $ 375 $ 3,300 $ 5,044 $ 507 $ 4,537 ________________________________________________________ (1) Includes the following items for the three months ended June 30, 2022 and 2021: (i) net loss of $(12,972) and $(7,015), (ii) interest expense of $6,604 and $314, (iii) depreciation and amortization expense of $6,240 and $1,845, (iv) acquisition and transaction expenses of $387 and $—, (v) changes in fair value of non-hedge derivative instruments of $7,118 and $5,078, (vi) equity-based compensation of $95 and $—, and (vii) asset impairment of $— and $24, respectively. Includes the following items for the six months ended June 30, 2022 and 2021: (i) net loss of $(34,352) and $(5,473), (ii) interest expense of $13,047 and $474, (iii) depreciation and amortization expense of $12,524 and $3,725, (iv) acquisition and transaction expenses of $391 and $—, (v) changes in fair value of non-hedge derivative instruments of $21,732 and $4,201 (vi) equity-based compensation of and $193 and $—, and (vii) asset impairment of $32 and $24, respectively. (2) Includes the following items for the three months ended June 30, 2022 and 2021: (i) equity-based compensation of $9 and $6, (ii) interest expense of $20 and $10, (iii) depreciation and amortization expense of $143 and $76 and (iv) changes in fair value of non-hedge derivative instruments of $(62) and $48, respectively. Includes the following items for the six months ended June 30, 2022 and 2021: (i) equity-based compensation of $15 and $15, (ii) interest expense of $30 and $20, (iii) depreciation and amortization expense of $225 and $152 and (iv) changes in fair value of non-hedge derivative instruments of $(36) and $(226), respectively. Revenues Total revenue decreased $0.7 million du ring the three months ended June 30, 2022 primarily due to a loss on butane forward purchase contracts at Repauno. Total revenue decreased $10.8 million du ring the six months ended June 30, 2022 primarily due to a loss on butane forward purchase contracts at Repauno. Expenses Total expenses increased $0.6 million du ring the three months ended June 30, 2022 which reflects (i) higher operating expenses of $0.5 million due to increased activit y at Repauno and (ii) higher depreciation and amortization of $0.2 million due to additional assets placed into service at Repauno. Total expenses increased $1.6 million du ring the six months ended June 30, 2022 which reflects (i) higher operating expenses of $1.2 million due to increased activit y at Repauno and (ii) higher depreciation and amortization of $0.3 million due to additional assets placed into service at Repauno. Other expense Total other expense increased $3.9 million and $26.9 million during the three and six months ended June 30, 2022, respectively, which reflects an increase in equity method losses in unconsolidated entities primarily due to unrealized and realized losses on power swaps at Long Ridge. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $3.3 million and $4.5 million during the three and six months ended June 30, 2022, respectively, primarily due to the changes noted above. 56 Transtar The following table presents our results of operations: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Revenues Lease income $ 553 $ — $ 553 $ 1,041 $ — $ 1,041 Rail revenues 37,507 — 37,507 71,089 — 71,089 Total revenues 38,060 — 38,060 72,130 — 72,130 Expenses Operating expenses 19,197 — 19,197 38,260 — 38,260 Acquisition and transaction expenses 149 — 149 355 — 355 Depreciation and amortization 4,696 — 4,696 9,455 — 9,455 Total expenses 24,042 — 24,042 48,070 — 48,070 Other expense Interest expense (15) — (15) (75) — (75) Other expense (305) — (305) (665) — (665) Total other expense (320) — (320) (740) — (740) Income before income taxes 13,698 — 13,698 23,320 — 23,320 Provision for income taxes 1,818 — 1,818 3,333 — 3,333 Net income 11,880 — 11,880 19,987 — 19,987 Less: Net income attributable to non-controlling interest in consolidated subsidiaries — — — — — — Net income attributable to Parent $ 11,880 $ — $ 11,880 $ 19,987 $ — $ 19,987 The following table sets forth a reconciliation of net income attributable to Parent to Adjusted EBITDA: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Net income attributable to Parent $ 11,880 $ — $ 11,880 $ 19,987 $ — $ 19,987 Add: Provision for income taxes 1,818 — 1,818 3,333 — 3,333 Add: Equity-based compensation expense 268 — 268 268 — 268 Add: Acquisition and transaction expenses 149 — 149 355 — 355 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — — — Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — — — — — — Add: Incentive allocations — — — — — — Add: Depreciation and amortization expense 4,696 — 4,696 9,455 — 9,455 Add: Interest expense 15 — 15 75 — 75 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — — — — Less: Equity in earnings of unconsolidated entities — — — — — — Less: Non-controlling share of Adjusted EBITDA — — — — — — Adjusted EBITDA $ 18,826 $ — $ 18,826 $ 33,473 $ — $ 33,473 Revenues Total revenues were $38.1 million and $72.1 million for the three and six months ended June 30, 2022, respectively, which primarily consists of switching, interline, and ancillary rail services. 57 Expenses Total expenses were $24.0 million and $48.1 million during the three and six months ended June 30, 2022, respectively. Expenses primarily consists of (i) operating expenses of $19.2 million and $38.3 million during the three and six months ended June 30, 2022, respectively, comprised mostly of compensation and benefits of $11.8 million and $23.6 million, respectively, and facility operating expense of $6.9 million and $12.1 million, respectively, and (ii) depreciation and amortization of $4.7 million and $9.5 million, respectively. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA was $18.8 million and $33.5 million during the three and six months ended June 30, 2022, respectively, primarily due to the activity noted above. Corporate and Other The following table presents our results of operations: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Revenues Other revenue $ 11,640 $ 1,474 $ 10,166 $ 12,658 $ 3,201 $ 9,457 Total revenues 11,640 1,474 10,166 12,658 3,201 9,457 Expenses Operating expenses 11,488 1,704 9,784 13,487 3,690 9,797 General and administrative 2,498 1,631 867 4,928 3,665 1,263 Acquisition and transaction expenses 8,723 2,560 6,163 12,753 3,518 9,235 Management fees and incentive allocation to affiliate 3,065 3,817 (752) 7,226 7,415 (189) Depreciation and amortization 508 155 353 676 309 367 Total expenses 26,282 9,867 16,415 39,070 18,597 20,473 Other income (expense) Equity in (losses) earnings of unconsolidated entities (888) 2,372 (3,260) (1,550) 377 (1,927) Interest expense (3) (21) 18 (5) (22) 17 Other income 1,043 3 1,040 1,043 3 1,040 Total other income (expense) 152 2,354 (2,202) (512) 358 (870) Loss before income taxes (14,490) (6,039) (8,451) (26,924) (15,038) (11,886) Provision for income taxes 61 — 61 61 — 61 Net loss (14,551) (6,039) (8,512) (26,985) (15,038) (11,947) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (25) — (25) (25) — (25) Net loss attributable to Parent $ (14,526) $ (6,039) $ (8,487) $ (26,960) $ (15,038) $ (11,922) 58 The following table sets forth a reconciliation of net loss attributable to Parent to Adjusted EBITDA: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2022 2021 2022 2021 Net loss attributable to Parent $ (14,526) $ (6,039) $ (8,487) $ (26,960) $ (15,038) $ (11,922) Add: Provision for income taxes 61 — 61 61 — 61 Add: Equity-based compensation expense — — — — — — Add: Acquisition and transaction expenses 8,723 2,560 6,163 12,753 3,518 9,235 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — — — Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — — — — — — Add: Incentive allocations — — — — — — Add: Depreciation and amortization expense 508 155 353 676 309 367 Add: Interest expense 3 21 (18) 5 22 (17) Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) (647) (21) (626) (1,335) 34 (1,369) Less: Equity in losses (earnings) of unconsolidated entities 888 (2,372) 3,260 1,550 (377) 1,927 Less: Non-controlling share of Adjusted EBITDA (2) (115) — (115) (115) — (115) Adjusted EBITDA (non-GAAP) $ (5,105) $ (5,696) $ 591 $ (13,365) $ (11,532) $ (1,833) ________________________________________________________ (1) Includes the following items for the three months ended June 30, 2022 and 2021: (i) net loss of $(947) and $5, (ii) interest expense of $191 and $(26), and (iii) depreciation and amortization expense of $109 and $—, respectively. Includes the following items for the six months ended June 30, 2022 and 2021: (i) net loss of $(1,655) and $(19), (ii) interest expense of $211 and $53, and (iii) depreciation and amortization expense of $109 and $—, respectively. (2) Includes the following items for the three months ended June 30, 2022 and 2021: depreciation and amortization expense of $115 and $—, respectively. Includes the following items for the six months ended June 30, 2022 and 2021: depreciation and amortization expense of $115 and $—, respectively. Revenues Total revenues increased $10.2 million during the three months ended June 30, 2022 primarily due to an increase of $10.2 million in other revenues from the acquisition of a majority interest in and consolidation of FYX during the second quarter of 2022. Total revenues increased $9.5 million during the six months ended June 30, 2022 primarily due to an increase of $10.2 million in other revenues from the acquisition of a majority interest in and consolidation of FYX during the second quarter of 2022. Expenses Comparison of the six months ended June 30, 2022 and 2021 Total expenses increased $20.5 million primarily due to higher (i) operating expenses and (ii) acquisition and transaction expenses. Operating expenses increased $9.8 million which reflects increases of (i) cost of sales of $7.8 million and (ii) compensation and benefits of $1.4 million primarily related to the consolidation of FYX during the second quarter of 2022. Acquisition and transaction expense increased $6.2 million primarily due to professional fees related to strategic transactions. Comparison of the three months ended June 30, 2022 and 2021 Total expenses increased $16.4 million primarily due to higher (i) operating expenses and (ii) acquisition and transaction expenses. Operating expenses increased $9.8 million which reflects increases of (i) cost of sales of $7.8 million and (ii) compensation and benefits of $1.4 million primarily related to the consolidation of FYX during the second quarter of 2022. Acquisition and transaction expense increased $9.2 million primarily due to professional fees related to strategic transactions. Other expense Total other expense decreased $2.2 million and $0.9 million during the three and six months ended June 30, 2022, respectively, primarily due to an increase of $3.3 million and $1.9 million in equity in losses of unconsolidated entities during the three and six 59 months ended June 30, 2022, respectively. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased $0.6 million and $1.8 million during the three and six months ended June 30, 2022, respectively, primarily due to the changes noted above. Liquidity and Capital Resources We believe we have sufficient liquidity to satisfy our cash needs; however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. This includes limiting discretionary spending across the organization and re-prioritizing our capital projects amid the COVID-19 pandemic. Our principal uses of liquidity have been and continue to be (i) acquisitions of transportation infrastructure and equipment,(ii) expenses associated with our operating activities, and (iii) debt service obligations associated with our investments. • Cash used for the purpose of making investments was $120.5 million and $73.7 million during the six months ended June 30, 2022 and 2021, respectively. • Uses of liquidity associated with our operating expenses are captured on a net basis in our cash flows from operating activities. Uses of liquidity associated with our debt obligations are captured in our cash flows from financing activities. Our principal sources of liquidity to fund these uses have been and continue to be (i) revenues from our infrastructure business net of operating expenses, (ii) proceeds from borrowings and (iii) proceeds from asset sales. • Cash flows used in operating activities were $55.4 million and $57.8 million during the six months ended June 30, 2022 and 2021, respectively. • During the six months ended June 30, 2022, additional borrowings were obtained in connection with the EB-5 Loan Agreement of $9.5 million. We did not make any principal repayments of debt during the six months ended June 30, 2022. During the six months ended June 30, 2021, additional borrowings were obtained in connection with the EB-5 Loan Agreement of $21.6 million. • Proceeds from the sale of assets were $4.3 million and $0.0 million during the six months ended June 30, 2022 and 2021, respectively. We are currently evaluating several potential Infrastructure transactions and related financings, which could occur within the next 12 months. None of these transactions or negotiations or financings are definitive or included within our planned liquidity needs. We cannot assure if or when any such transaction will be consummated or the terms of any such transaction. Historical Cash Flow Comparison of the six months ended June 30, 2022 and 2021 The following table compares the historical cash flow for the six months ended June 30, 2022 and 2021: Six Months Ended June 30, (in thousands) 2022 2021 Cash Flow Data: Net cash used in operating activities $ (55,390) $ (57,780) Net cash used in investing activities (121,176) (73,667) Net cash provided by financing activities 121,131 146,364 Net cash used in operating activities decreased $2.4 million, which primarily reflects (i) certain adjustments to reconcile net loss to cash used in operating activities including equity in losses of unconsolidated entities of $28.6 million and (ii) changes in working capital of $7.2 million, partially offset by (iii) an increase in our net loss of $41.9 million. Net cash used in investing activities increased $47.5 million, primarily due to an increase in acquisitions of property, plant and equipment of $39.9 million. Net cash provided by financing activities decreased $25.2 million, primarily due to (i) a decrease in contributions from Parent of $10.2 million, and (iii) a decrease in proceeds from debt of $16.7 million. We use Funds Available for Distribution (“FAD”) in evaluating our ability to meet our stated dividend policy. FAD is not a financial measure in accordance with U.S. GAAP. The U.S. GAAP measure most directly comparable to FAD is net cash provided by operating activities. We believe FAD is a useful metric for investors and analysts for similar purposes. 60 We define FAD as: net cash provided by operating activities, proceeds from sale of assets, and return of capital distributions from unconsolidated entities, less required payments on debt obligations and capital distributions to non-controlling interest, and excludes changes in working capital. The following table sets forth a reconciliation of Net Cash (Used in) Provided by Operating Activities to FAD: Six Months Ended June 30, (in thousands) 2022 2021 Net Cash Used in Operating Activities $ (55,390) $ (57,780) Add: Principal Collections on Finance Leases — — Add: Proceeds from Sale of Assets 4,304 — Add: Return of Capital Distributions from Unconsolidated Entities — — Less: Required Payments on Debt Obligations (1) — — Less: Capital Distributions to Non-Controlling Interest — — Exclude: Changes in Working Capital 43,388 36,237 Funds Available for Distribution (FAD) $ (7,698) $ (21,543) Limitations FAD is subject to a number of limitations and assumptions and there can be no assurance that we will generate FAD sufficient to meet our intended dividends. FAD has material limitations as a liquidity measure because such measure excludes items that are required elements of our net cash provided by operating activities as described below. FAD should not be considered in isolation nor as a substitute for analysis of our results of operations under U.S. GAAP, and it is not the only metric that should be considered in evaluating our ability to meet our stated dividend policy. Specifically: • FAD does not include equity capital called from our existing limited partners, proceeds from any debt issuance or future equity offering, historical cash and cash equivalents and expected investments in our operations. • FAD does not give pro forma effect to prior acquisitions, certain of which cannot be quantified. • While FAD reflects the cash inflows from sale of certain assets, FAD does not reflect the cash outflows to acquire assets as we rely on alternative sources of liquidity to fund such purchases. • FAD does not reflect expenditures related to capital expenditures, acquisitions and other investments as we have multiple sources of liquidity and intend to fund these expenditures with future incurrences of indebtedness, additional capital contributions and/or future issuances of equity. • FAD does not reflect any maintenance capital expenditures necessary to maintain the same level of cash generation from our capital investments. • FAD does not reflect changes in working capital balances as management believes that changes in working capital are primarily driven by short term timing differences, which are not meaningful to our distribution decisions. • Management has significant discretion to make distributions, and we are not bound by any contractual provision that requires us to use cash for distributions. If such factors were included in FAD, there can be no assurance that the results would be consistent with our presentation of FAD. Debt Obligations Refer to Note 8 of the Combined Consolidated Financial Statements for additional information. Contractual Obligations Our material cash requirements include the following contractual and other obligations: Debt Obligations — As of June 30, 2022, we had outstanding principal and interest payment obligations of $0.7 billion and $0.3 billion, respectively, of which, $— and $29.6 million, respectively, are due in the next twelve months. See Note 8 to the Combined Consolidated Financial Statements for additional information about our debt obligations. Lease Obligations —As of June 30, 2022, we had outstanding operating and finance lease obligations of $172.9 million, of which $6.0 million is due in the next twelve months. Other Obligations —As of June 30, 2022, in connection with a pipeline capacity agreement at Jefferson Terminal, we had an obligation to pay a minimum of $9.2 million in marketing fees in the next twelve months. Other Cash Requirements —In addition to our contractual obligations, we intend to pay quarterly cash dividends on our common and preferred stock, which are subject to change at the discretion of our Board of Directors. We expect to meet our future short-term liquidity requirements through cash on hand, unused borrowing capacity or future financings and net cash provided by our current operations. We expect that our operating subsidiaries will generate sufficient 61 cash flow to cover operating expenses and the payment of principal and interest on our indebtedness as they become due. We may elect to meet certain long-term liquidity requirements or to continue to pursue strategic opportunities through utilizing cash on hand, cash generated from our current operations and the issuance of securities in the future. Management believes adequate capital and borrowings are available from various sources to fund our commitments to the extent required. Critical Accounting Estimates and Policies Goodwill — Goodwill includes the excess of the purchase price over the fair value of the net tangible and intangible assets associated with the acquisition of Jefferson Terminal, Transtar, and FYX. The carrying amount of goodwill was approximately $262.8 million and $257.1 million as of June 30, 2022 and December 31, 2021, respectively. We review the carrying values of goodwill at least annually to assess impairment since these assets are not amortized. An annual impairment review is conducted as of October 1 of each year. Additionally, we review the carrying value of goodwill whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The determination of fair value involves significant management judgment. For an annual goodwill impairment assessment, an optional qualitative analysis may be performed. If the option is not elected or if it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a goodwill impairment test is performed to identify potential goodwill impairment and measure an impairment loss. A qualitative analysis was not elected for the year ended December 31, 2021. A goodwill impairment assessment compares the fair value of the respective reporting unit with its carrying amount, including goodwill. The estimate of fair value of the respective reporting unit is based on the best information available as of the date of assessment, which primarily incorporates certain factors including our assumptions about operating results, business plans, income projections, anticipated future cash flows and market data. If the estimated fair value of the reporting unit is less than the carrying amount, a goodwill impairment is recorded to the extent that the carrying value of the reporting unit exceeds its fair value. We estimate the fair value of the Jefferson and Transtar reporting units using an income approach, specifically a discounted cash flow analysis. This analysis requires us to make significant assumptions and estimates about the forecasted revenue growth rates, EBITDA margins, capital expenditures, the timing of future cash flows, and discount rates. The estimates and assumptions used consider historical performance if indicative of future performance and are consistent with the assumptions used in determining future profit plans for the reporting units. In connection with our impairment analysis, although we believe the estimates of fair value are reasonable, the determination of certain valuation inputs is subject to management's judgment. Changes in these inputs, including as a result of events beyond our control, could materially affect the results of the impairment review. If the forecasted cash flows or other key inputs are negatively revised in the future, the estimated fair value of the reporting unit could be adversely impacted, potentially leading to an impairment in the future that could materially affect our operating results. Due to the acquisition of Transtar in 2021, the estimated fair value of that reporting unit approximates the book value. The Jefferson reporting unit had an estimated fair value that exceeded its carrying value by more than 10% but less than 20%. The Jefferson Terminal segment forecasted revenue is dependent on the ramp up of volumes under current and expected future contracts for storage and throughput of heavy and light crude and refined products and is subject to obtaining rail capacity for crude, expansion of refined product distribution to Mexico and movements in future oil spreads. At October 31, 2021, approximately 4.3 million barrels of storage was currently operational with 1.9 million barrels currently under construction for new contracts which will complete our storage development for our main terminal. Our discount rate for our 2021 goodwill impairment analysis was 9.0% and our assumed terminal growth rate was 2.0%. If our strategy changes from planned capacity downward due to an inability to source contracts or expand volumes, the fair value of the reporting unit would be negatively affected, which could lead to an impairment. The expansion of refineries in the Beaumont/Port Arthur area, as well as growing crude oil production in the U.S. and Canada, are expected to result in increased demand for storage on the U.S. Gulf Coast. Although we do not have significant direct exposure to volatility of crude oil prices, changes in crude oil pricing that affect long term refining planned output could impact Jefferson Terminal operations. We expect the Jefferson Terminal segment to continue to generate positive Adjusted EBITDA in future years. Although certain of our anticipated contracts or expected volumes from existing contracts for Jefferson Terminal have been delayed, we continue to believe our projected revenues are achievable. Further delays in executing these contracts or achieving our projections could adversely affect the fair value of the reporting unit. The impact of the COVID-19 global pandemic during 2020 and 2021 negatively affected refining volumes and therefore Jefferson Terminal crude throughput but we have seen the activity starting to normalize and are expected to ramp back to pre-pandemic levels during 2022. Furthermore, we anticipate strengthening macroeconomic demand for storage and the increasing spread between Western Canadian Crude and Western Texas Intermediate as Canadian crude pipeline apportionment increases. Also, as our pipeline connections became fully operational during 2021, we remain positive for the outlook of Jefferson Terminal's earnings potential. There was no impairment of goodwill for the year ended December 31, 2021. Recent Accounting Pronouncements See Note 2 to our Combined Consolidated Financial Statements for recent accounting pronouncements. 62