Fortress Transportation and Infrastructure Investors LLC Common Shares

Good day and thank you for standing by. Welcome to the 3rd Quarter 2021 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. 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. To ask a question, you will need to press star 1 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. And now I would like to turn the conference over to Mr. Alan Andre. You may begin, sir.

Thank you, Operator. I would like to welcome you to the Fortress Transportation and Infrastructure Third 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. 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 FAS. The reconciliations 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.

Thank you, Alan. To start today, I'm pleased to announce our 26th dividend as a public company and our 41st consecutive dividend since inception. The dividend of 33 cents per share will be paid on November 29th based on a shareholder record date of November 15th. 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 2021 was 96.4 million compared to Q2 of 2021 of 68 million and Q3 2020 of 58.6 million. FAD was 39.4 million in Q3 2021 versus 68.3 million in Q2 2021 and 39.9 million in Q3 2020. During the third quarter, the 39.4 million FAD number was comprised of 90.5 million from our aviation leasing business, negative 0.2 million from our infrastructure business, and negative 50.9 million from corporate and other. Turning now to aviation, the aviation recovery continues as our EBITDA for Q3 was approximately 100 million, up from 80 million in Q2 and 60 million in Q1. We see broad improvement in demand across narrow-body markets with some delays resulting from the Delta variant. As an example, we signed leases for approximately 30 engines in the quarter, but airlines took actual delivery of approximately 15, as several regions had continuing travel restrictions, but for the most part now have been reopened in Q4. We have a strong backlog of engine demand and expect to start new leases on over 40 engines in Q4, of which 30 are signed today and 10 have already been delivered. We're also closing new sale leaseback transactions on 16 aircraft with Alitalia and ETA, and 19 aircraft with Avianca, and funding those in November for an aggregate new investment of $340 million. The term of the leasebacks range from 6 months to 10 years, with an average of 50 months, and three-fourths of these 319s and 320 aircraft are CFM-56 powered aircraft, which is an excellent addition and brings our total CFM-56 engine count to approximately 300 engines. Our three CFM56 aerospace activities all made great strides forward. On PMA, the next part has completed production and documentation is being assembled to make the final FAA application complete in the next few weeks. As such, we expect to be able to use both parts for our own engines in Q1 2022 and are seeing strong third-party interest from multiple airlines and MROs or maintenance and repair organizations for shop visits beginning in 2022. On the module factory, we have completed a number of module sales and swaps and are progressing with a few airlines in negotiating long-term programmatic supply agreements. As for our used serviceable material business or USM business with AAR, We are targeting approximately 10 million in sales in Q4, with momentum growing into 2022. All combined, 2022 is shaping up really well, with leasing EBITDA expected to be $500 million for the year and the three CFM56 aerospace activities expected to contribute between 50 and 100 million of total EBITDA for the year, total EBITDA for aviation for 2022 is expected to be 550 to 600 million. Let's now turn to infrastructure. Starting with Jefferson, on the heels of the previously announced 10-year deal with Exxon in mid-July, the Jefferson terminal continues to reshape and transform the logistics options in the U.S. Gulf Coast and in the Beaumont, Port Arthur, Texas refinery region. This region remains one of the largest refinery footprints in North America, and the Jefferson Terminal has become an essential extension of the two largest refineries in North America. Looking specifically at Q3, near-term headwinds continue to impact the economics of crude by rail from Western Canada to the U.S. Gulf Coast. However, due to the improved logistics associated with the ExxonMobil cross-channel pipeline system, Jefferson has seen an increase of 44% in 2021 compared to 2020, in the refined products by rail to Mexico business, resulting in Jefferson posting another positive quarter with EBITDA of $1.9 million. The enhanced terminal infrastructure and the in-service pipeline projects connecting Jefferson to Exxon and to Motiva have been completed, and baseline business continues to steadily increase as these business partners ramp up refinery activity. As we look towards 2022, high oil prices and demand for refined products is good for Jefferson. Local refiners are lining up new sources of discounted crude from markets in western Canada and Uinta Basin and looking for terminals like Jefferson to optimize blends and lower logistics costs. Additionally, international oil flows are increasing and Jefferson will be receiving its first ever inbound Afromax marine cargo from the North Sea this month. We have high expectations for additional inbound marine volumes from overseas, and have line of sight on several other significant opportunities in the near future. Specifically, we're making progress on DRU, delirium recovery unit discussions, as well as discussions relating to the movement of heavy wax barrels which cannot move by pipeline. These two projects are important because they would lead to a radical flow of trains which are not dependent upon crude spreads. Finally, we're moving forward several interesting opportunities regarding the movement of natural gas liquids and other products which would involve the integration of Rapano, Longridge, and Jefferson into a seamless, flexible, and unique supply chain. Turning to Rapano, Rapano continued its strong pace in the third quarter, loading 14 marine vessels with over 900,000 barrels of butane bound for international markets. This activity was complemented by increased truck movements to local premium markets to signal the beginning of the fall gasoline blending season. Rounding out the first export season, the highly flexible multimodal port and rail terminal firmly established itself as a premier distribution hub on the east coast of the United States. And we're excited to enter the local propane distribution market this winter. By increasing the suite of products handled simultaneously at the terminal and providing security of supply for local markets in the Northeast, we're meeting the customer's needs not only in New Jersey, but also in the entire Northeast region. Pushing towards further development outlined in FTIE's long-term vision, the newest port on the Delaware River plans to see expanded capacity with three-plus million barrels of highly efficient underground storage capable of handling a wide variety of LPG and refined products to be ready for export via all-size ships, including VLGCs. Rapano is also looking at import opportunities as they rise in various markets and under various market conditions. Product movements will be available by rail, inbound and outbound, by water across multiple new high-capacity deepwater docks, and eventually by pipe from all major North American producing regions. With 250 plus acres available for development, we also continue to move forward with several renewable opportunities. Rapano is primed for staging and manufacturing of wind farm components and for waste plastic recycling projects. These discussions are in advanced stages and we hope to have one or more concluded by year end. Together with the Jefferson facility in Beaumont, Texas, FTI is well-positioned with multimodal distribution and export terminals on both the Gulf Coast and the Mid-Atlantic seaboard, providing unparalleled levels of service, flexibility, and optionality for our customers. Turning now to Longridge, Longridge has successfully transitioned from a development project into a cash-flowing operating business, as evidenced by the 15.5 million EBITDA on a 100% basis generated in Q3. Most of the Q3 EBITDA was attributable to our natural gas production, which was sold into the market. And now that the power plant is operating, our natural gas is being utilized to generate electricity. While natural gas prices have rallied recently, and we benefited from that in Q3, the economics of generating electricity are even better. We anticipate Longridge to generate EBITDA of approximately $50 million in Q4 and $37 million in Q1 2022, which taken together is more than $40 million higher than we expected when we initially underwrote the project. This incremental cash flow is a result of completing construction nearly a month ahead of schedule and higher power and natural gas prices in the market today. Our fixed price power sales agreement commenced in February, blocking in an attractive margin for the next 7 to 10 years and generating approximately $120 million per year of EBITDA. We've also recently seen lots of interest from power-intensive industries that want to locate and build new facilities at properties like Longridge. Importantly, we remain on track to be the first large-frame power plant in the U.S. to blend hydrogen into our natural gas streams. We will start with a 5% hydrogen blend in December and hope to increase this percentage over time. Turning now to Transtar, our newest addition. Transtar is off to a great start. John Carnes and his team are already meeting or exceeding expectations. I'll start with an important metric in the short-line rail business, which is safety. Transtar continues to lead the short-line railroad industry in safety. and is well positioned to win another President's Award for Safety from the American Short Line and Regional Railroad Association. All of the Transar Railroads are FRA and Ocean Recordable Injury Free in 2021. Since July 28th, the date the Transar acquisition closed, the company is tracking to the 80 million annual EBITDA number that we had projected. Transition expenses are tapering off and expected to be de minimis in 2022. As to the core business, strong steel markets continue to support shipment of both finished steel and raw material. And we believe that improving chip availability will drive robust steel shipments for auto, which is a high profit margin business for us. And we could see increased shipments to that sector in Q4 of this year and Q1 of next year. Other steel segments are holding steady and strong. Mon Valley is running full, while Gary, Indiana has a planned maintenance outage at the number six furnace, which is expected to be completed in November. As we look to 2022, we expect multiple and new third-party opportunities to grow the $80 million EBITDA number. We are in discussions with third parties regarding car storage opportunities and rail car repair opportunities, just to name two. In short, everything we had hoped to see happen post the acquisition is happening. Turning now to corporate items on the spin-out of infrastructure, we have made considerable progress on the spin-off of infrastructure and conversion to C-Corps. In Q3, we completed the refinancing of the Transar acquisition financing and are now focused on completing the documentation and agreements which we hope to be finalized in December of this year for an SEC filing before year end, which would set us up for having two separate trading entities in Q1 of 2022. The existing FTI entity will retain the aviation business and assets and all existing corporate debt totaling approximately 2.3 billion pre-acquisition of the Alitalia and Avianca fleets. Infrastructure to be spun out as a new C-Corp entity comprised of Jefferson, Lepano, Longridge, and Transtar will retain all related project level debt of those entities and intends to remit approximately $800 million in cash or obligations as part of the separation. While we intend to monetize this obligation to the maximum amount, The SPIN will not be subject to raising additional financing at completion. So in conclusion, the ramp back up in aviation to 2019 levels is progressing. Our revenue past your kilometers continue to rise, and as a result, we're seeing engine lease rates and demand for sale leasebacks rise as well. And with the industry still straining from the shock of COVID-19, we're seeing demand for our ChromoLoy Lockheed Martin AR suite of products growing as well. As the infrastructure projects that we started three to five years ago are now in full ramp-up mode, these projects, along with Transar, now give us the ability to spin infrastructure into a robust, standalone company. That vision, which we've been planning for years, is about to become reality. So we're at an exciting time in FTI's history. We're at that point because of the hard work of a lot of outstanding employees and directors and the cooperation and partnership of some great customers. And I want to thank everyone for helping bring us to this exciting inflection point. With that, I will turn the call back to Alan.