Fortress Transportation and Infrastructure Investors LLC Common Shares

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 and full-year Fortress Transportation and Infrastructure Investors LLC earnings conference call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 1 on your telephone. 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 Andrini. Thank you. Please go ahead, sir.

Thank you, Cindy. I would like to welcome you all to the Fortress Transportation and Infrastructure Fourth Quarter and Full Year 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 FAT. The reconciliations of those numbers to the most directly comparable GAAP numbers 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 SEC. I would like to turn the call over to Joe.

Thank you, Alan. To start today, I'm pleased to announce our 23rd dividend as a public company and our 38th consecutive dividend since inception. The dividend of 33 cents per share will be paid on March 23rd based on a shareholder record date of March 12th. 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 Q4 2020 was 46.2 million compared to Q3 2020 of 58.6 million and Q4 2019 of 234 million. On a normalized basis, excluding the gains or losses from the sales, Q4 2020 adjusted EBITDA was 44.3 million compared to $59.7 million in Q3 2020 and $92.1 million in Q4 2019. FAD was $54.2 million in Q4 2020 versus $39.9 million in Q3 2020 and $288.6 million in Q4 2019. On a normalized basis excluding sale proceeds and non-recurring items, Q4 2020 FAD was 35.7 million compared to 23.9 million in Q3 2020 and 58.1 million in Q4 2019. During the fourth quarter, the 54.2 million FAD number was comprised of 89.9 million from our aviation leasing business, negative 1.8 million from our infrastructure business, and negative 33.9 million from corporate and other. Now let's look at all of 2020 versus all of 2019 adjusted EBITDA in 2020 was 243.3 million versus 503.4 million in 2019 normalized fat in 2020, 147.9 million versus 192.4 million in 2019. And by far the dramatic reductions in passenger air travel due to COVID-19 drove the negative financial impact to 2020. Turning now to aviation, this extremely challenging operating environment for passenger operations continued into Q4 2020 and will extend into Q1 2021. New travel restrictions in most geographies pushed down flying activity to very low levels, but the outlook for a strong snapback in 2021 is more evident today than ever before. In Q4, results were negatively affected by one, passenger aircraft maintenance reserve collections, which is driven off hours and cycles flown by our customers, decreased approximately $6 million in Q4 from Q3. Two, $2 million of income was lost from a lease end of two 767 passenger aircraft that are now under a letter of intent to be sold to a cargo operator. And three, the failure of three airlines increased bad debt expense by approximately 2 million. Cargo business remains strong, representing approximately 30% of our revenues, and 2021 levels are robust due to surging global trade and vaccine distributions. While we expect Q1 2021 to be very similar to Q4 2020 or modestly better, we expect aviation EBITDA for 2021 to total approximately 450 million compared to $290 million in 2020. We also went through the entire portfolio of equipment and took a $20 million impairment over 31 individual aircraft and engines. While the aggregate appraised portfolio value completed by third-party appraisers as of 12-31-2020 exceeds book value by greater than 20%, Specific individual values have declined due to the limited market for sale and purchase. And so we elected to write down these specific assets to levels which we expect to be the lowest value in this cycle and position our fleet for a strong 2021-22 rebound. The assumptions underpinning the $450 million in EBITDA in 2021 are Number one, $320 million contribution from the existing portfolio with strong recovery in Q3 and Q4. Two, $80 million in EBITDA from new investments of approximately $300 million starting in Q2 and growing. Three, engine leasing utilization of 60% to 70% in the first half of 2021 increasing to 70% to 80% in the second half. and four $50 million in EBITDA contributions from our parts and maintenance joint ventures and partnerships with ChromoLoy, Lockheed Martin, and AAR starting in Q2 and growing in Q3 and Q4. We see substantial evidence of passengers increasingly booking travel and airlines starting to add capacity while still avoiding spending capital on expensive engine shop visits in numerous markets globally. Importantly for us, the demand for narrowbody engines is materially better than any time in the last 12 months and is forecast to exceed supply this year and into 2022. With our ability to deliver the lowest cost per flight cycle for CFM56 engines and to offer capital efficient leasing to airlines, we are extremely well positioned to grow EBITDA and earnings from the largest engine market in the world through our proprietary products and exclusive partnerships with some of the leading aviation companies in the world for the next decade. Let's turn to infrastructure now. Starting with Rapano, our state-of-the-art natural gas liquids rail transloading system is now complete and in operation. The system allows for flexibility to load products directly to marine vessel or into our underground cavern for storage. creating unique opportunities for our customers. We loaded our first marine vessel directly from rail in early January. And during the fourth quarter, we saw continued utilization of our truck rack, meeting local demand with direct access to the premium New York Harbor blending market. Negotiations have gone well with producers and off-takers, and we are finalizing firm commitments for natural gas liquids throughput beginning in the second quarter of 2021. And we expect to commit a large portion of the facility's capacity to ratable term business this year, while maintaining the flexibility to capitalize on unique spot opportunities. Now that the facility is open for business, discussions with off-takers for multi-year commitments for phase two storage caverns and VLGC shipments are underway. We hope to have identified counterparties and commence construction this year for delivery of that system in 2024. Longridge. The Longridge Power Plant construction is more than 80 percent complete and is tracking significantly ahead of schedule relative to the November 2021 completion date guaranteed by our construction firm. At this point, we expect that the plant will be generating cash flow from test operations by early summer, and will be fully operational in August. We continue to see a high level of interest from power-intensive industries looking to site new facilities in Longridge. We have been advancing our discussions with data centers and cryptocurrency miners whose interest is driven in part by a recently announced initiative to blend hydrogen into our power plant by the end of this year. 2020 was a good year for our frac sand business, despite the industry-wide slowdown in natural gas drilling activity. We transloaded over 900,000 tons of frac sand, which was higher than budget and up more than 15% year over year. So all in all, a good quarter for Long Ridge. Jefferson. The Jefferson terminal continues to make good progress in providing increased logistics optionality for its customers and consistent and profitable business revenues. Jefferson posted its fourth consecutive positive quarter with EBITDA of $4.2 million. The macro picture at Jefferson for Q4 was very similar to Q3 with positive EBITDA accomplished through the continued rationalization of costs during the pandemic-driven downturn and high occupancy in the terminal. This was accomplished with only three trains of heavy Utah crude in December and no heavy Canadian crude trains during the quarter. There were no heavy Canadian heavy train moves due to the compression in the WCS WTI spread and the reluctance of refineries to increase refinery run rates due to uncertain consumer demand. With a higher and more stable WTI price environment, crude price environment, higher end market demand, and higher pipeline apportionment from pipelines out of western Canada, we expect to see crude by rail economics improve for both Canada and Utah. As such, we and our customers are planning for increased crude by rail volumes starting in Q2 of this year, 2021. The all-important pipeline construction projects are nearing completion, and the first pipeline project connecting the Jefferson Terminal with the Exxon Beaumont Refinery has been completed and put into service. Nearly a million barrels will move through the pipeline in the first month of service in January, and we expect refined product volumes to steadily increase as the result of a more economic and rateable logistical solution. Additionally, with product moving via pipeline instead of barge, the barge stock has new opportunities for future marine movements. The two additional pipeline projects connecting the Jefferson Terminal with Motiva, owned by Saudi Aramco, and the Jefferson Terminal with the Cushing, Oklahoma market via the Payline pipeline remain on track to be operational in the second quarter. As we look down the road, we continue to develop several other large-scale projects with our major customers. Turning now to the topic of sustainability, we have been and will continue to look across existing businesses and at new investment opportunities to promote a more environmentally friendly approach while at the same time driving long-term growth, profitability, and value creation. We believe sustainability to be both good business and the right thing to do for everyone. Everyone in our companies is involved and responsible for advancing FTIE to become a leader in sustainable investing and operations. As such, we will on a regular basis update investors on our progress and will deliver our first annual sustainability report to our board and shareholders by the end of Q1 2022. FTIE's ownership of three North American port and rail terminals with Jefferson Energy in Beaumont, Texas, Longridge Energy in Eastern Ohio, and Rapano in the Philadelphia area affords us a somewhat unique ability to incubate and explore new technologies and approaches utilizing these properties. All have great logistics connectivity, rail, water, road, ample industrial land, and low-cost energy resources. The first example of this and an exciting one for the industry is the introduction of hydrogen as a fuel for the Longridge Energy Power Plant. We have recently signed an agreement with GE to install blending equipment for the power plant to be operational by the end of 2021 this year. In addition, we signed a five year hydrogen purchase agreement with a company that will deliver hydrogen from a nearby industrial facility that makes hydrogen as a byproduct of their industrial process. And by year end, Long Ridge will be the first hydrogen burning large frame gas turbine in the United States. and the first worldwide to blend hydrogen in a GE H-class turbine. In addition to this project, we are also actively engaged with several additional investment opportunities including, one, partnering to build a biorefinery and gas to liquids plant to produce renewable diesel and lubricants and green hydrogen. Two, building a plant to convert agricultural waste to produce biogas and green hydrogen. Three, building a plant to convert animal waste to produce organic fertilizer and biogas. Four, building a facility to convert non-recyclable plastics to produce sustainable jet fuel. And five, invest in a company with patented air sterilization and filtration technology to commercialize products that create a safer environment and save fuel costs with ready applicability for aviation and marine industries. Lots of progress and terrific opportunities with a lot more to come. So in conclusion, 2020 will be a year remembered and discussed for a long time to come. A year when we all learned that we have a lot less control over our environment than we had come to believe. A year of stress is beyond any worst-case scenario we have ever contemplated. But on the bright side, we're all better managers today, more empathetic, more flexible, more resilient, more appreciative. Our businesses are in much better shape today, and our team of employees is a tremendous strength. And for that, we are proud and grateful. So with that, I'll turn the call back to Ellen.