Fortress Transportation and Infrastructure Investors LLC Common Shares

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 Fortress Transportation and Infrastructure Investors LLC earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Alan Andrani. Thank you, sir. Please go ahead.

Thank you, operator. I would like to welcome you all to the Fortress Transportation Infrastructure Third Quarter 2020 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer, and Scott Christopher, our Chief Financial Officer. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including FAD. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplements. Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements, and to review the risk factors contained in our quarterly report filed with the FCC. Now I would like to turn the call over to Joe.

Thank you, Alan. To start, I'm pleased to announce our 22nd dividend as a public company and our 37th consecutive dividend since inception. The dividend of 33 cents per share will be paid on November 30th based on the shareholder record date of November 16th. Now let's turn to the numbers. The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA for Q3 2020 was $58.6 million compared to Q2 2020 of $66.5 million and Q3 2019 of $112 million. On a normalized basis excluding the gains or losses from the sales, Q3 2020 adjusted EBITDA was $59.7 million compared to $65.7 million in Q2 2020 and $74.9 million in Q3 2019. FAB was $39.9 million in Q3 2020 versus $47.3 million in Q2 2020 and $120.7 million in Q3 2019. On a normalized basis excluding sale proceeds and non-recurring items, Q3 2020 FAD was 23.9 million compared to 38.2 million in Q2 2020 and 48.7 million in Q3 2019. During the third quarter, the 39.9 million FAD number was comprised of 74.5 million from our aviation leasing portfolio, negative 300,000 from our infrastructure business, and negative 34.3 million from corporate and other. Now let's turn to aviation. Q3 for aviation was a pretty good quarter. Financially, the cargo business continued to shine, but passenger recovery flattened out, so we came up a little short of our expectations. Passenger flight hours on our fleet have improved every month since April, and we expect that trend to continue as countries and economies continue to battle the virus and work towards an effective vaccine. As we expected, demand for engine leasing is picking up for all engine types as airlines dramatically cut optional maintenance restoration shop visits until available green time is consumed. We ended the quarter with approximately 60% engine utilization on our fleet and are engaging now with several airlines to set up leasing programs for 2021. Looking to 2021, Our total existing fleet of approximately $1.5 billion of invested capital should generate approximately $375 million of EBITDA per annum, or our target of 25%. We are also targeting new investments in CFM56 engines and related aircraft and have approximately 70 engines, 7-0 under LOI, totaling approximately $200 million of capital. we would expect that incremental investment to generate a higher EBITDA return of approximately 35% per annum, or $70 million in 2021, bringing total aviation EBITDA to approximately $450 million of EBITDA per annum. And with $120 million of cash at September 30th, and a $250 million undrawn revolver, we have ample liquidity to capitalize on these extremely attractive investment opportunities. We also last week entered into an exciting maintenance partnership with Lockheed Martin, which will provide FTI with numerous benefits and advantages in managing and growing our CFM 56 owned fleet and providing third-party services to airlines. while giving Lockheed Martin a steady supply of shop visits for their impressive Montreal facility. Financially, the benefits of this partnership to FTIE should materialize soon in early 2021. Firstly, we expect to save approximately $500,000 per shop visit in 2021, and with our own fleet in excess of 200 engines or 40 shop visits per annum, represents a 20 million savings in 2021 secondly by setting up the module factory we can optimize the part out of engines and our goal is to monetize the equivalent of 20 engines for a gain of approximately 1 million per engine or an additional 20 million dollars in 2021 lastly we plan to establish cfm 56 programs with airlines many of which we've already begun discussions and negotiations with cash cash conservation programs for airlines at an all-time high and available spares with green time running down our timing is optimal our goal for 2021 is to enter into programs with two to three airlines covering 250 engines or 50 annual shop visits with our current set of practices and contracts We are targeting a profit of $1 million per shop visit for FTIE, with a savings in excess of that for the airline, while also providing the airline with significantly quicker turn times due to our new innovative module factory approach. So in total, our goal is to generate an incremental $100 million per annum starting in 2021. Also very exciting, is our advanced engine repair joint venture. As a reminder, if and when we have approval for all five parts, the savings to us will be over $2 million per shop visit and will give us proprietary position to perform a $6 million average shop visit for approximately $2.5 million. And the first of these products is in the final stage and should be commercially available very soon. Now turning to Jefferson and infrastructure. The big news at Jefferson continues to be the significant progress made on the three major pipeline connection projects, both from a construction management perspective and from negotiations around commercial deals with Motiva, owned by Saudi Aramco, Exxon, and other creditworthy third parties. As a reminder, these three major projects, which are now two to three months from completion and operation, will connect or hardwire the Jefferson Terminal with the two largest refineries in North America. As such, we have been and are actively engaged with both refineries regarding numerous opportunities to receive, blend, store, and export a wide variety of crudes and refined products. And as the projects get closer to actual operation, the number of options and combinations keep expanding. And we are also looking at adding additional pipeline connections to further solidify our market position and competitive advantages. In Q3, Jefferson was able to post its third consecutive quarter with positive EBITDA of $4.3 million, up from $3 million in Q2. And the improvement was driven by rationalization of costs during the pandemic-driven downturn, increased refined product volumes, and 100% utilization of our storage. Of note, this was achieved in spite of having no crude by rail moves into the terminal in Q3 due to compression in WCS versus WTI spreads and less refinery demand. We are now starting to see increased demand with spreads widening and have trains scheduled again for waxy crude from Utah in Q4 of this year. And the Canadian market is showing activity again, both near term and long term. At least one diluent recovery unit, or DRU project, is moving forward with planned movements to the Gulf Coast in the second half of 2021, which we are well positioned to handle. DRUs will provide a steady, regular flow of heavy crude by rail, which Jefferson is fully capable today of receiving, storing, blending, and shipping. So in all, not a bad result in Q3 in an extremely challenging demand environment with major advances in connectivity and optionality just about here. And we can't wait for 2021. Turning to Rapano, construction of our phase one NGL natural gas liquids train to ship loading, trans loading operation is now complete. The work took longer than originally scheduled due to COVID related issues. But with construction complete, we are in the process of testing and commissioning the system. And as we communicated last quarter, our 186,000 barrel cavern has been successfully pressure tested, confirming our ability to store propane in it. This is important to us because of the size of the propane market is much larger than the butane market. We are currently in negotiations with both producers and off takers for propane delivery beginning in early Q2, 2021. The negotiations are going well, and we expect to have firm commitments either late Q4 of 2020 or early Q1 of 2021. We expect to be shipping our first cargoes of propane early Q2 of 2021. As to other opportunities at Rapano, we continue discussions with the wind farm component manufacturer and alternatively biofuel manufacturers. And finally, the road construction of the bypass into Rapano is progressing well and is expected to be completed in Q2 of 2021. The bottom line on this is COVID-19 has caused some additional challenges at Rapano, but as to the commercial discussions, we are seeing parties re-engaging and the discussions are going well. On Longridge, Q3 was a good quarter for our frac sand business, particularly when considering the industry-wide slowdown in natural gas drilling activity. We transloaded over 200,000 tons of frac sand, which was in line with budget. And for the first three quarters of 2020, we transloaded over 700,000 tons of frac sand, which is approximately 14% ahead of budget. As a result of Longridge's strategic location in the core of the Marcellus and Utica shale regions, one of our largest customers has indicated interest in extending our existing contract for a five-year term. And in addition, in the third quarter, Longridge signed a second two-year contract with a commodities trading company to transload and store road salt. The power plant construction continues to be on budget and is tracking to an earlier completion date than November 2021, which is guaranteed by our construction firm. Furthermore, we continue to see a high level of interest from power-intensive industries looking to site new facilities at Longridge. In addition, we have numerous ongoing discussions with data centers whose interest is driven in part by our recently announced initiative with GE and New Fortress Energy's Zero Division to blend carbon-free hydrogen as fuel for our power plant as early as next year. We're very excited about this initiative as Longridge will be the first purpose-built hydrogen-burning power plant in the United States and worldwide to blend hydrogen in a GE H-class gas turbine. In conclusion, like most companies, we continue to see pressure on our businesses in Q3. Decision times have been moved to the right, for sure, but we continue to make good progress on all of our long-term plans. We looked for two years to find the right MRO partner, and in Lockheed Martin, we believe we have found that partner. Together, we're going to be able to change the landscape of the CFM56-5B-7B maintenance market for the next 20 years. This relationship, combined with our PMA initiative, will put us in position of having offerings to the airline industry which no one will be able to match. This has taken years of hard work, focus, and dedication from a lot of talented people, but the vision that we had and initiated four years ago is close to becoming reality. As to Long Ridge, the hydrogen initiative that we announced with GE and the Zero Division of New Fortress Energy is already being felt in the market. The conversations that we are having with major data center users have accelerated and are more serious. The financial impact to our remaining 50% interest in Long Ridge will be meaningful. Of equal importance in our mind is the fact that this first of its kind initiative in hydrogen power will be an important step in the world's goal of zero emissions. For sure, the financial gains from this initiative are not lost, but of equal importance is the fact that we are now playing an important role in the aspirational goal of zero worldwide carbon emissions. and we are confident that our experience with this project will lead us to more carbon-free power project investments. For Jefferson, our goal has been to build a core business that generates a fair return but opens up, once that infrastructure is in place, multiple additional high-margin expansion opportunities. Right now, we are engaged with several major projects with our neighbors, which could and will lead to such an outcome. As I look back on Q3 and compare it to all our quarters since we went public, I think we remember it as one of our most important from a strategic initiative standpoint. From the MRO deal with Lockheed Martin to the PMA deal hopefully days away to the hydrogen initiative at Longridge and to the aviation growth opportunity I mentioned earlier, FTIE will come out the other side of this pandemic a better, stronger company. With that, let me turn the call back to Alan.