Fortress Transportation and Infrastructure Investors LLC Common Shares

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker 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. 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, Alan Andrini.

Thank you, April. I would like to welcome you to the Fortress Transportation Infrastructure Second Quarter 2021 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 in our press release on our website, which we encourage you to download if you have not already done so. And 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 reconciliations 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 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. Thank you.

Thank you, Alan. To start today, I'm pleased to announce our 25th dividend as a public company and our 40th consecutive dividend since inception. The dividend of 33 cents per share will be paid on August 30th, based on a sharehold record date of August 16th. Now let's start with the numbers. The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA for Q2 2021 was $68 million compared to Q1 2021 of $47.2 million and Q2 of 2020 of $66.5 million. FAT was $68.3 million in Q2 2021 versus $14.4 million in Q1 2021 and $47.3 million in Q2 2020. On a normalized basis, excluding sale proceeds and non-recurring items, Q2 2021 FAD was 15.7 million compared to 9.8 million in Q1 2021 and 38.2 million in Q2 2020. During the second quarter, the 68.3 million FAD number was comprised of 116.2 million from our aviation leasing portfolio, negative 2.5 million from our infrastructure business, and negative 45.4 million from corporate and other. Now, starting with aviation. Aviation experienced a meaningful increase in activity in passenger markets in Q2, and our portfolio of engine products and services is picking up momentum. While we achieved our goal of 80 million of EBITDA in Q2, up from 60 million in Q1, We are seeing a slightly slower ramp due to continuing COVID travel restrictions related to the Delta variant, particularly in Europe. As a result, we're now projecting 2021 EBITDA of 400 million as compared to our previous projection of 450 million for the full year. The engine leasing market is particularly strong as airlines look to ramp up flying while continuing to minimize maintenance capital spending. Q2 was our second most active quarter for engine leasing with 23 new leases delivered, bringing engine utilization to 65%, excluding new engine acquisitions. We recently started new programs with two to five engines each with major airlines in the Americas that we could see growing to over 20 engines each over the next year. While a little bit behind the Americas, we expect the same phenomenon to occur in Europe later this year. Also, new investment opportunities are increasing as illustrated by our agreement to purchase 12 A319s on four-year lease to one of the U.S. majors. Our three CFM56 maintenance product programs are all gaining momentum and broad market acceptance. The USM or Used Serviceable Material Program in Q2 with AAR is very active with approximately 15 million orders booked or closed. This strong and growing demand gives us confidence in hitting our targeted 20 engine teardowns this year with 1 million per engine profit or 20 million total profit for 2021. Our module factory has also been busy with 125 active users on the website and a handful of sales or exchanges consummated. We have big aspirations for growth in the module factory in the next 12 to 18 months with several sizable active campaigns now being negotiated. Thirdly, PMA with Chromaloy has made big strides with the second part in production preparing for final submission to the FAA in September. All in all, the market is shaping up better than we had hoped for our unique and proprietary approach to the commercial jet engine market. Now let's turn to infrastructure. Starting with Rapano, at Rapano the high levels of activity this quarter are bringing the long-term vision into sharp focus. We started in 2016 with a vacant property of 1,600 acres on the Delaware River with Conrail rail service and a small underground unused storage cavern. By 2024, we expect to have completed a fully capable world-class natural gas liquids hub comprising three-plus million barrels of highly efficient underground storage capable of handling butane, propane, ethane, condensate, propylene, and other refined products for export via all-size ships, including VLGCs, and for import opportunities as market dictates. Product movements will be available by rail, both inbound and outbound, be it Norfolk Southern or CSX, by water across multiple new high-capacity deepwater docks, by pipe from all major North American producing regions, and by truck via our new state-funded highway access road. And all of this in one of the most desirable East Coast locations. In addition, we have 250-plus developable acres which are ideally suited and will likely be utilized for staging and manufacturing of offshore wind farm components and new plastics recycling facilities. And the reason we are highly confident that this vision will become reality is we are doing much of this today. In Q2, we brought in 1.1 million barrels of LPG by rail and safely and efficiently loaded 17 marine vessels at our docks. We moved butane to local markets by truck and have expanded our capabilities to handle propane. And importantly, we are on the map with global LPG players throughout the value chain. Turning to Longridge, I'm pleased to report that the two-and-a-half-year, $600 million-plus power plant construction project is nearly complete two months early and on budget, thanks to the more than 500 skilled and hardworking men and women involved involved in designing and building this state-of-the-art, highly efficient power plant. We expect full-scale 24-7 operations to start in early September. As a reminder, we've entered into 7- to 10-year fixed-price power sale contracts that start in early 2022 with investment-grade counterparties for 94% of the plant's output, and we have secured 100% of the natural gas requirements at an effective low-cost fixed price through our ownership of local gas wells, thus locking in the spread for eight and a half years. Importantly, we are on track by the end of this year to become one of the first hydrogen fuel power plants in North America and the first worldwide in a GE H-class turbine. Having multiple pathways to generating carbon-free energy is a high priority and, we believe, extremely valuable. Like Rapano, we're fortunate to also have 200-plus acres of attractive, well-connected, developable industrial property to add to the site's upside value. We're in active negotiations with three different crypto mining companies to host their operations and provide low-cost, 24-7 power with the option to convert to carbon-neutral power as well. With lots of interest in different approaches available, we've been focusing on minimizing our investment in crypto specific assets while maximizing the upside through fixed price power contracts and profit sharing. We believe an investment of 20 million or less in transformers, which have multiple uses for us, will have a one year payback. We're also in the final stages of negotiations to host the facility but uses a new technology to make biodegradable plastics using natural gas and electricity as the primary inputs. Finally, our frac sand and road salt transloading operation achieved record volume in Q2 of nearly 300,000 tons, up from 230,000 tons last year. Now Jefferson, the big development of Jefferson is obviously the new 10-year contract with ExxonMobil. The new operation will utilize the recently built pipelines connecting Jefferson with the ExxonMobil Beaumont refinery, which is undergoing a major expansion, and Jefferson's marine docks. Jefferson will construct 1.9 million barrels of new storage to be utilized by ExxonMobil for refined product storage and export beginning in January 2023. In addition to the significant ExxonMobil base volumes, this infrastructure will enable us to attract additional customers to further optimize this new domestic and international refined products hub. Combined with the existing growing refined products rail to Mexico business, this new strategic Jefferson ExxonMobil tie-in further enhances the logistics capability of the Beaumont refinery complex. Our crude business with Motiva is also poised to grow again following reduced refinery throughput due to the COVID-related demand destruction. But with volumes picking up, we're seeing Motiva utilizing the existing storage and pipeline connectivity for pipes barrels from Cushing via our payline connection, imported fuel oil by water, wax crude railed from Utah, and renewed focus on Canadian heavy crude by rail. So with our growing array of connectivity options and prime location next to the two largest refineries in North America, we're extremely excited about the list of commercial opportunities ahead that will leverage and optimize our investment in Jefferson's infrastructure. Turning now to Transtar, we're pleased to report that the acquisition of Transtar from USCO closed yesterday, so next quarter we will be discussing financial results for this new segment. We're excited to add a significant rail business which performs critical functions at two major North American integrated steel complexes under exclusive long-term contracts. And while we're just getting started, we have identified several opportunities for near-term operating improvements and long-term growth, including developing the four additional railroads included in the deal. Transstar has a strong management team in place who are all very excited to grow and expand the business, and we are very much looking forward to getting at it. Turning now to a couple of corporate items. First, we launched this week a $425 million municipal bond offering at Jefferson. The proceeds will finance expansion CapEx, including assets related to the 10-year Exxon deal. and approximately $175 million to be upstream to FTIE and available for general corporate purposes. Rates and terms for these long-term non-recourse financings continue to be extremely attractive. And this cash infusion of $175 million at the current level, along with approximately $150 million in revolver capacity, puts FTIE in a very strong liquidity position. Second, with the two infrastructure enhancements now done, we will be progressing the plan and accelerating the timeline to split aerospace and infrastructure into two companies and eliminate K1s for shareholders. We hope to have the timeline defined in Q3 with a goal of executing the spin before year end. To sum up, both infrastructure and aerospace are in great shape. In infrastructure, with the addition of Transtar, which has a 15-year initial term, and the new 10-year contract with ExxonMobil at Jefferson, we have substantially increased the amount and tenor of contracted revenue and EBITDA, as was always our plan. Having Longridge, which is already over 90% contracted, and having strong indications at Rapano from suppliers and off-takers in executing long-term contracts, infrastructure is more than ready to become a standalone company. With aviation, the transition to a vertically integrated aerospace company targeting the largest engine market in the world is well underway. And the recovery, while not in a straight line, is definitely happening. With that, I will turn the call back to Alan.