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spk00: Good afternoon. My name is Krista, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Sky Harbor 2023 Year-End Earnings Conference Call and Webinar. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, Simply submit a question online using the webcast URL posted on our website. Thank you. Francisco Gonzalez, Chief Financial Officer, you may begin your conference.
spk01: Thank you, Krista. I'm Francisco Gonzalez, CFO of Scar Harbor. Hello and welcome to the 2023 Full-Year Earnings Equity Investor Conference Call and webcast for the Scar Harbor Group Corporation. We have also invited our bondholder investors in our borrowing subsidiaries to join and participate on this call as well. Before we begin, I have been asked by council to note that on today's call, the company will address certain factors that may impact this year's earnings. Some of the information that will be discussed today contains forward-looking statements. These statements are based on management assumptions which may or may not come true, and you should refer to the language on slide one and two of this presentation, as well as our SEC filings for description of the factors that may cause actual results to differ from our forward-looking statements. All forward-looking statements are made as of today, and we assume no obligation to update any such statements. So now, let's get started. The team with us this afternoon you know from our prior webcast. Tal Kanan, our CEO and Chair of the Board, Mike Schmidt, our Chief Accounting Officer, Tim Herr, our Treasurer, and Tori Petro, our Accounting Manager. Joining us today is Will Whitesell, our COO since the beginning of the year. Will came to Scar Harbor after a successful career in the construction industry. Having spent 15 years at Turner Construction, six years four years at the related companies and more recently um six years of software construction where he was last ceo of the new york region we're very glad to have will in our leadership team we have a few slides we want to review with you before we open up questions these slides have been filed a few minutes ago in the form 8K with the SEC, and will also be available on our website after this call. As the operator stated, you may submit written questions during the webcast using the 4Q platform, and we'll address them shortly after our prepared remarks. Let's get started.
spk03: Next slide, please.
spk01: This is a summary of our financial results in the context of the trend of the past three years for selected metrics. In the interest of time, I would like to highlight just a couple of items. First, our revenues in the last quarter were in line sequentially with the prior quarter, if not just for the previously disclosed and non-recurrent items of Q3. And now we're ready for the next step function related to the opening of a new campus, something that now is expected to occur starting next week with the opening of our new facility at the San Jose Mineta International Airport. And Tal will shortly disclose more details on this great, exciting, you know, grand lease and operation. Second, our operating expenses at SG&A are semi-fix to fix, and we continue watching our expenses and maintaining frugality whenever possible. Lastly, looking ahead, our consolidated cash flow from operations continues to move towards the break-even point, which we expect now to occur at the beginning of 2025 after the opening of commercial operations in our three campuses currently under construction. Next slide. Similarly, the financial results of Sky Harbor Capital and its operating subsidiaries that form the obligated group of our outstanding bonds track similar results if than the holding public company, except for the SG&A, which is mainly a parent company, and the employee stock-based compensation expenses, also the parent company. Sky Harbor Capital is forecasted to be cash flow positive throughout 2024. In terms of rentable square footage, we continue to make significant progress in securing new ground leases. With the newest executed at the San Jose Mineta International Airport and at the Orlando Executive Airport, following approval by the Greater Orlando Aviation Authority. As we have stated in the past, the value of our business is not backward-looking, but in the projects and the pipeline in front of us. Once a ground lease is executed, the value creation for our shareholders is effectively locked in, and it's all about execution thereafter. With that summary of results, let me turn to Will to discuss the previous disclosed remediation at some of our construction projects in Phoenix, Denver, and Edison, and later to Tal for more on these exciting news about our new airports. Will?
spk05: Thank you, Francisco. This slide represents the individual fields cost and schedule impacts from our three-month forensic engineering study. The root cause analysis has been determined to be a one-time structural design defect with our prototype hanger. Through a rigorous study, we've developed a comprehensive remediation plan and cost that after completion, we will never have to look back again at these fixes in these fields. A brief explanation of the bars below. Starting with the yellow bar indicates the cost, anticipated cost of complete pre-design defect awareness. And the gray bar on the right represents the indicated cost after remediation and that project completion. The delta between the two is the magnitude of the impact per field. Also indicated in the notes above are the target completion dates for each of the fields after the remediation plan and completion. With that, I'll turn it back to Francisco to discuss the financial implications.
spk01: Thank you, Will. Implementation of the remediation has increased and extended the life of the obligated groups construction fund as illustrated on the graph on the left-hand side of the deck slide. Having identified, corrected, and now implementing the remediation, we injected $27 million in additional cash equity from the holding company to Sky Harbor Capital to ensure fund insufficiency at the construction fund of the obligated group. The performer cash and U.S. Treasury bills at the obligated group currently now stand close to $127 million, as depicted on the right-hand side pie. I want to reiterate that as a matter of company policy, we will continue to protect our borrowing PAPS program, not just in terms of our ability to pay the debt service on time, but to manage the program with the objective to exceed the debt service coverage we projected at the time of the bond offering in August of 2021. This commitment continues being sacrosanct for us. Back to Will for a discussion on ramping up our development activities.
spk05: Thank you. As Francisco gave a quick introduction on my background, I spent 25 years of my career in two key areas, managing multiple large projects and moving organizations from walking to running. With that being said, our key objectives as we move forward, higher quality, lower costs, shorter delivery times, and performing all of these above at greater scale. This is exactly what our pipeline is demanding of us moving forward. How do we get there? One, team integration of our development and construction members. These three groups have to be fully integrated, ensuring we have enough bandwidth, discipline experts with proven results. Two, prototype refinement. As we move forward, we've standardized our hanger design and configuration. This will allow us to drive both cost and execution as we move forward. Three, manufacturing capacity, we continue to retool and increase our internal fabrication capacity with rapid build and develop multiple external fabrication sources to ensure we have plenty of supply to meet our future demand of 10 structures. And lastly, process integration from choosing sites with our site acquisition team through development and construction. Finally, with our hangar operations, Both our processes and interface points have to be seamless, which leads us to our next slide. This slide, otherwise known as a Gantt chart, is a snapshot of our parallel development planning process. This is what we are gearing up for and responding to as our pipeline continues to grow. And this is what we'll be ready for as we move into through the rest of 24 into 25. With that, I'll turn it over to Tal for a leasing update.
spk02: Great. Thank you, Will.
spk04: Okay, so you can see the first three pie charts on the left are our existing campuses in Houston, Nashville, and Miami. You can see we're a little bit, actually a little bit above 95% occupancy, which if you subtract the assumed vacancy rates in our original PABS filing represents what we call full occupancy. A couple points I want to make here, first of all, We're looking to achieve a little bit greater than 100% occupancy due to the success we've seen in our semi-private hangar leasing, where we can achieve somewhat higher than 100% occupancy. A couple other points is the escalators on all of these leases are CPI with a hard floor of 3 or 4%. So, they're escalating at a good rate. Our renewals, we have had our first renewals, which have come in in the 20 to 30% range. So, we do believe there's significant upside once you are fully leased. I think we'll probably save it for a separate call on additional revenue streams, but we are beginning to get non-rent revenue streams online. Again, we'll report on that in detail as that becomes more substantial. On the right side is our new campus in San Jose, which is our first Tier 1 airport in the portfolio. As I think a lot of people may have read already, there is an existing facility that we're inheriting in addition to construction that we plan to do at that field. We're pre-leased. Operation start date is April 1st, which is next week. We're already pre-leased to the tune of almost 60% and hope to be fully occupied, you know, sometime in the next few weeks in San Jose on the first phase of that.
spk02: Next slide is San Jose itself.
spk04: So I think as we go forward, you're going to hear us talking more and more about revenue capture, which I'll describe in a little bit more detail in two slides. But it is essentially the available revenue to us at each location. So our phase one at San Jose, what's opening right now, we're looking at about a $5 million revenue opportunity. Phase two, which we'll add to that, we'll add another just north of $2 million. Again, very, you know, I'd say one of the more established airports and metro markets in the country. And, you know, based on OEM backlogs and orders to this market, it's also one of the faster growing markets in the country. Next slide is our 11th announced airport win, which is Orlando Executive. San Jose is one of the more established airports in the country. Orlando is one of the fastest-growing metro centers. So we're looking at about just under $5 million of revenue capture in phase one, just over $3 million in phase two. And this is a market that we expect to see grow significantly. It already has very heavy demands, a big supply-demand mismatch between hangars and business aircraft that need to be hangared. And this is all happening in the metro center with the second highest GDP growth in the United States. So we're quite optimistic about the future of our ladder executive. The next slide is on revenue capture. And again, I think most people who have followed us have heard us talk about our growth in terms of number of airports or square footage of hangers. Those are really both proxies for what we're really pursuing. which is available revenue. And so what you can see on this slide is the kind of the left half of that bar chart is the first six airports. You can see all the way on the left what represents the obligated group that we discussed earlier. That's our original bond issuance. So that's the capture from those first six airports. And if you go to the right side of the chart where the arrow is, that's March 2024 as of today, 11 airports capturing about $95 million in available revenue. Okay, that's square footage times the Sky Harbor equivalent rent that we applied to each airport, right? That's what that measure is of available revenue. And then if you take the chart to the right, that is the indications that we've given to the market as to what we expect in the year ahead.
spk02: I'm sorry, until the end of 2025. Next slide. I think we'll wrap it up here.
spk04: I'm just going to, the only thing I want to stress on this slide is the companies Current focus is site acquisition. We've got to do everything, and you can see on the slide kind of a snapshot of what's going on in each vertical center in the company. The primary focus, though, of management right now is revenue capture, and that's site acquisition. Go after the best fields, achieve the most square footage that we can in the shortest time possible. And as we see the questions coming in, I see a lot of people are asking about that, and I think that's exactly appropriate. Right now is where we go into high growth phase. With that, let me hand it back to Francisco.
spk01: Thank you, Tal. This concludes our prepared remarks. We now look forward to your questions. Operator, please go ahead with the queue.
spk00: Thank you. At this time, I would like to remind everyone, in order to ask a question, please submit it online using the webcast URL. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Philip Resto. The 40 to 50 locations that were mentioned on the last call, what are your thoughts on announcements for 2024? Lastly, how many of future locations could be existing like San
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