Fortress Transportation and Infrastructure Investors LLC Common Shares

Good day and thank you for standing by. Welcome to the Q1 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press TORN and then zero on your touchtone telephone. As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host, Mr. Alan Andrini. Please go ahead, sir.

Thank you, Patricia. I would like to welcome you to the Fortress Transportation Infrastructure First Quarter 2021 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer, Scott Christopher, our Chief Financial Officer, and Bo Woolley, the CEO of our Long Ridge Energy Terminal. 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. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. 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. Now, I would like to turn the call over to Joe.

Thanks, Alan. To start, I'm pleased to announce our 24th dividend as a public company and our 39th consecutive dividend since inception. The dividend of 33 cents per share will be paid on May 25th based on a shareholder record date of May 14th. Now let's turn to the numbers. The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. The adjusted EBITDA for Q1 2021 was $47.2 million compared to Q4 2020 of $46.2 million and Q1 2020 of $72 million. FAT was $14.4 million in Q1 2021 versus $54.2 million in Q4 2020 and $96 million in Q1 2020. On a normalized basis excluding sales proceeds and non-recurring items, Q1 2021 FAD was 9.8 million compared to 35.7 million in Q4 2020 and 67.4 million in Q1 2020. During the first quarter, the 14.1 million FAD number was comprised of 60.6 million from our aviation leasing portfolio, negative 3.8 million from our infrastructure businesses, and negative 42.4 million from corporate and other. Now turning first to aviation, Q1 EBITDA for aviation of 61 million was a slight improvement from Q4, as we expected. But also, as we expected, we are seeing a meaningful uptick in activity in April and expect Q2 aviation EBITDA to exceed 80 million. As an example, we have signed 20 new leases for CFM56 engines of which eight have already been delivered in the last few weeks. Seventy-five percent of our fleet is 737NG and A320CO aircraft and engines, which are flown mostly in domestic shorter-haul markets, which are poised for strong rebound by Q3 of this year, with many airlines planning flight schedules that are equal to or greater than Q3 of 2019. and 20% of our fleet is operating in the cargo markets, which continue to experience record high demand. Thus, our fleet is extremely well positioned for the recovery. Our PMA initiative is progressing well, with the second part expected to be formally submitted to the FAA in July or August, having had some minor tweaks to the final parts, which are now complete. But the big development for us This quarter is the opening of our module store. We believe commercializing modules will disrupt traditional CFM56 engine maintenance by enabling airlines, operators, owners, and MROs to save money, reduce turnaround time, eliminate cost surprises, and in many cases, keep the engine on wing during the maintenance. We're well positioned to be the leader in modules with our comprehensive suite of services, including PMA parts developed with Chromaloy, our USM, or Used Serviceable Material Supply, coming out of our AAR partnership, and the Lockheed Martin Maintenance Venture, combined with our large inventory of 250 CFM56 engines. On Monday of this week, we formally launched the module store to the trade and invite everyone to take a tour. You can find the website and a QR code link on page six of our investor presentation, which will be posted today. We've received a strong positive reaction from all industry participants and are convinced that this approach can change how major engine maintenance is conducted for a meaningful segment of the market due to the substantial savings generated by maintaining our inventory of readily available modules. And the potential financial impact to FTI is significant. For the CFM56 engine fleet today, there are roughly 2,500 aftermarket overhaul shop visits per annum, and that's projected to grow to over 3,000 by 2024. Approximately 20% or say 500 of those shop visits only require work on one module, which makes it a perfect candidate for our module factory. If FTIE could capture 20% of that market or 100 module swaps per annum, we would expect to generate $50 million in annual EBITDA for FTIE while saving an equal amount or more for the engine owner and operator. And as the more complete PMA product line becomes available, This number will only get bigger. Now let's turn to infrastructure. First, on Rapano, after loading our first marine vessel in January through our state-of-the-art MGL, or natural gas liquids, rail transloading system, we have completed some facility operational enhancements, which will increase flow rates from our existing cavern by over 40%. and ultimately enable us to quickly change service between butane and propane to best meet market demand. In addition, we've now completed the loading of our second marine vessel and we have 30 additional vessels scheduled over the coming months. We have successfully negotiated firm contracts for NGL volumes at Rapano beginning in the second quarter this quarter and committing up to 90% of the current capacity through the third quarter of 2021. We plan to have volume moving to international, local, and regional markets from Rapana this year, demonstrating the optimization capabilities associated with the strategic location of our facility. We continue to discuss long-term strategic contracts with both producers and off-takers, which will yield commercial justification for expansion of our facility through the construction of additional underground caverns. We see also increased interest and more discussions in renewable opportunities, including renewable fuels manufacturing and, most notably, potential customers for offloading, staging, and manufacturing wind farm components. At the moment, we have multiple conversations going with the leading wind farm developers off the east coast of the United States, in particular New Jersey and New York, But as mentioned previously, Rapano is well positioned for these opportunities with heavy load roll-on, roll-off dock capabilities and 200 available acres for development. Turning now to Longridge, the Longridge Power Plant is nearing completion. First fire of the gas turbine is scheduled for May, and we will be fully operational by mid-summer, which is significantly ahead of schedule relative to our planned November 2021 completion date, which was guaranteed by our EPC contractor. And importantly, starting next month, Longridge will be generating cash flow from test operations. By controlling our own natural gas and having the world's most efficient plant, Longridge has one of the lowest power production costs in North America. This provides many ways for us to create additional values, And a good example of this is crypto mining. We've seen a lot of interest from global crypto mining companies as they search for sites that have the lowest cost around 24-7 power and scale. Several have identified Longridge as the best possible location for their operations. As such, we evaluated two different alternatives to approach this and increase EBITDA for the power plant. The first way would be to lease land and sell power to these miners at approximately $35 to $40 a megawatt hour, which is a premium to our existing contracts of approximately $30 a megawatt hour. The second approach would be to enter the mining business. And at current Bitcoin prices, mining, Longridge, would be the equivalent of selling power for over $150 a megawatt hour after capital cost recovery and expenses, which is five times higher than our existing power sales agreements. This strategy could make a lot of sense, in particular since our power plant is capable of generating more than the 485 megawatts that it is currently rated for. The economics of using this extra capacity are extremely attractive. If we were to utilize just 20 megawatts for crypto mining, Longridge EBITDA could increase from 120 million per annum to nearly 165 million per annum at current Bitcoin prices. So as such, we are arranging for the first machines to be delivered this Monday to our property and are negotiating for a larger order representing approximately two megawatts of power for an August 2021 startup. We also continue to be excited about our hydrogen power plans at Longridge. We are progressing on the design and engineering of the blending skid in partnership with GE and remain on track to start blending hydrogen by the end of this year. This will make Longridge the first purpose-built hydrogen-burning power plant in the United States, and the first worldwide to blend hydrogen in a GE H-class gas turbine. We're in discussions with numerous customers who have expressed interest in the carbon-free electricity that we will be able to provide. Finally, the quarter was good for our Fraxan business. Despite continued industry-wide slowdown in natural gas drilling, we translated over 210,000 tons of frac sand and 33,000 tons of road salt. Turning now to Jefferson, activity at the Jefferson Terminal remains robust. Near-term product movements combined with long-term project development continues to increase Jefferson's competitive positioning in the Houston-Beaumont-Port Arthur Terminal landscapes. While total terminal throughput and economics continued to face headwinds in the short term, Jefferson posted its fifth consecutive positive quarter with EBITDA of $2.8 million down from $4.2 million in Q4. The lower quarter-on-quarter EBITDA can be attributed to challenged crude-by-rail economics across North America and lost throughput and refinery demand due to the ice storm and deep freeze in Texas in February. As we look towards Q2 in the second half of 2021, we're very optimistic about increased refinery demand and production, increased oil production, which should drive terminal throughput higher in the next few months. Combined with improved customer demand and a more stable economic picture globally and certainly domestically, Jefferson's completed pipeline projects have strategically aligned Jefferson with long-term top quartile end users. Jefferson is becoming an essential logistical extension of two of the largest refineries in North America, and the long-term strategy and vision continues to make excellent progress in providing increased logistics optionality for customers and consistent and profitable business revenues for Jefferson. As we described last quarter, the pipeline project connecting the Jefferson terminal with Exxon Beaumont Refinery has been completed and it's been in service since January. The gasoline and diesel pipelines account for two of the six pipelines that go under the river connecting Jefferson with Exxon, and we're already realizing approximately 20% higher throughput volumes compared to the pre-pipeline volumes. We expect to find product volumes to continue to steadily increase as a result of a more economic and radical logistical solution. Additionally, project development work is well underway to put the additional four pipelines into service for other products in the near future. Line fill safety and startup procedures began in Q1 for the two other pipeline projects. The pipeline to Motiva, which is owned by Saudi Aramco, is now operational, and the Payline pipeline connecting Jefferson to Cushing, Oklahoma, we are projecting will be operational in May. This crude optionality from both the inbound and outbound perspectives will expand the reach of accessible crude oils available to Jefferson and our customers, create enhanced blending options, and it's a start to balancing out crude flows in and out of the terminal via pipe, rail, and marine. As to the balance of this year, we remain in close contact with our customers in the U.S. Gulf Coast, Canada, Mexico, and Utah, and are getting closer in finalizing several large-scale projects with our major customers. So in conclusion, as we look back over the last few months, if we were to mark the end of the pandemic and the beginning of the recovery on the calendar, the end of Q1 feels like a pretty good guess. Even still in Q1, in infrastructure, we completed the three pipeline projects at Jefferson, the natural gas loading export terminal at Rapano, and are well on the way to commissioning the power plant at Longridge. And in aviation, we continue to improve the positioning of our fleet for the recovery and have added an excellent group of new airline customers to our network. And very importantly, we have combined our CFM56 products into an ecosystem that can reach and appeal to the entire CFM56 user base through our brand new module factory. So while feeling a great sense of relief that the travel and infrastructure worlds are growing again, I'm extremely excited about what other new things we can do to make 2021 and 2022 truly exceptional for our employees, our customers, and our investors. So with that, I will turn the call back to Alan.