Fortress Transportation and Infrastructure Investors LLC Common Shares

good day and welcome to the second quarter 2022 fortress transportation and infrastructure investors earnings call today's call is being recorded and i would now like to turn today's conference over to alan andrini please go ahead sir thank you lisa i would like to welcome all of you to the fortress transportation infrastructure second quarter 2022 earnings call joining me here today are joe adams the ceo of ftai Ken Nicholson, the CEO of FTI Infrastructure, Scott Christopher, the CFO of FTI Infrastructure, and Angela Nam, the soon to be CFO of FTI Aviation. 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 FAB. 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 and Ken, 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-cap 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. Welcome to the FTI second quarter earnings call. Today we have presented and will be discussing the financials as of June 30th on a consolidated basis. We're very excited that everything is in place for the spinoff of FTI infrastructure to be completed next Monday. So we will also provide some pro forma information about the two separate companies which we'll be trading next Tuesday under the symbols FTAI and FIP. To start, I'm pleased to announce our 29th dividend as a public company and our 44th consecutive dividend since inception. The dividend of $0.33 per share will be paid on August 29th based on a shareholder record date of August 15th. Let's now turn to the consolidated numbers. The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA was $165.3 million, up 220% compared to $51.6 million in Q1 2022, and up 143% compared to $68.3 zero million in Q2 2021. FAD was 109.4 million, up 53% compared to 71.4 million in Q1 2022, and up 60% compared to 68.3 million in Q2 2021. During the second quarter, the 109.4 million FAD number was comprised of 161.6 million from our aviation leasing portfolio, 9.9 million from our infrastructure business, and negative 62.1 million from corporate and other. Starting out with aviation, aviation had a really good quarter, posting approximately 160 million of EBITDA and 105 million of net income. We're benefiting from strong demand globally, driven by the recovery in travel demand, which in turn is fueling growth in engine aftermarket services. Lease rates have returned to at or above pre-COVID levels And improving asset utilization is pushing maintenance reserve collection up, while inflation is driving higher per hour and cycle rates. Asset prices are also up. We took advantage by selling about 100 million book value of assets for a gain of 55 million. And we have more asset sales coming in Q3 and Q4, both to recycle capital invested in some of our 2021 larger acquisitions and continue capitalizing on the robust freighter market. Aerospace products had an excellent quarter with $17 million in EBITDA and a significant increase in order backlog. We're in the process of completing two separate asset sales where FTI will retain engine maintenance service contracts for the next eight years covering 22 engines. We believe this marks a unique way to scale the number of engines we manage while recycling capital for new investments. In addition, we've been awarded a major engine exchange program covering between 10 and 20 engines for a large Southeast Asian airline. All told today, we now have five airlines, three leasing companies, and five maintenance repair organizations, or MROs, signed up to use the module factory for a significant portion of their CFM56 fleet, And every user we've had so far has been a repeat customer. Used serviceable material, USM, sales experience more activity in Q2 as shop visits increased. Demand for used CFM56 material is high and growing and sufficient to easily support 20 to 30 engine teardowns per year. which continue to generate approximately a million in profit per engine for us. Our PMA initiative made significant progress in Q2 on the next four parts development. Although the process is slower than expected, we're very happy with the parts being produced and are promptly supplying all data requested. At this point, we expect all four new products to be submitted for final approval by this time next year. We currently expect to complete an additional $200 million in asset sales in Q3 and have concurrently signed up $300 million in attractive new acquisitions to replace these. The new deals are expected to be accretive by adding more EBITDA than the assets removed. Although from a timing perspective, Q3 likely will experience a slight decrease in leasing EBITDA until those new investments have fully closed. Turning to the insurance claims, we're making good progress by supplying all information requested by the insurers regarding our $290 million in claims for assets lost in Russia-Ukraine. With three different buckets of claims, we think it is possible to realize a partial recovery by year-end 2022 this year with the balance collected in 2023 and 2024. As a reminder, any recoveries will be 100% income since all related assets were written off fully in Q1. To pull it all together, we expect aviation, without any insurance recoveries, will produce per quarter 90 to 100 million in EBITDA from leasing, 20 to 30 million in asset sale gains, which we think will be recurring each quarter, and 20 to 30 million in EBITDA from aerospace products, totaling 550 to 600 million in per-anum EBITDA from aviation. With this level of EBITDA, we expect FTIE Aviation to pay a dividend going forward of $1.20 per annum, while FIP, Fortress FTIE Infrastructure, expects to pay 12 cents per annum. for the total of $1.32 for the two stocks post-spin. Let me now turn the call over to Ken to discuss infrastructure.

Thank you, Joe, and good morning, everyone. As Joe mentioned, our infrastructure business will be a standalone company commencing next Tuesday. We're extremely excited about the prospects of our infrastructure platform and believe we're well positioned to drive substantial growth at each of our four existing businesses. It's a dynamic time in the industrial and energy markets with inflation and focus on energy security as prominent as ever, and our assets are extremely well positioned to capitalize on several opportunities. Quickly to the second quarter results. In total, our infrastructure business posted $26.7 million of EBITDA in the second quarter, up 34.8% sequentially from $19.8 million in the first quarter of 2022. Importantly, each of our four core companies reported sequential growth in revenue and EBITDA. As we head into the second half of the year, we're seeing good momentum across the portfolio and expect to continue to generate meaningful sequential growth as our businesses continue to ramp up operations following recently completed developments and as new contracts kick in. In the aggregate, we're targeting achieving annual adjusted EBITDA in excess of $200 million in the next 12 to 24 months with no additional investment required to meet that target. I'll briefly review each of our infrastructure companies, starting with Transtar. Transtar had an excellent quarter, posting growth across all aspects of the business, including volumes, pricing, revenue, and EBITDA. EBITDA increased from 14.8 million in Q1 to 18.8 million for Q2, a 29% quarter-over-quarter gain. More importantly, cash flow was 20 million for the quarter as sales from non-core assets continued to exceed capital expenditures. Volumes at Transtar increased from 54,000 to 57,000 car loads from Q1 to Q2 while pricing, or average rate per car, grew from $562 to $599 per car load. We're insulated from inflation and higher fuel costs at Transtar with the ability to pass through higher operating costs under our contract with U.S. Steel. And ancillary services also grew at Transtar, with car repair efforts bringing in new revenue for the quarter. While the third quarter is typically seasonally a little soft, softer than other quarters during the year, we expect results to remain steady as we look ahead, driven by continued progress on a number of initiatives to gain new customers and grow revenue from other sources, including car repair and real estate income. Next on to Jefferson. Q2 EBITDA at Jefferson was $4.2 million, up 11% compared to $3.8 million in Q1 of 2022. We saw increases in volumes of both refined products and crude oil as utilization of our terminal capacity continued to steadily ramp up during the quarter. We're very bullish about the second half of the year at Jefferson and expect revenue and EBITDA to grow materially in the third and fourth quarters. We're seeing a substantial pickup in volumes of refined products shipped to Mexico, and yellow wax crew trains are now running at 9 to 10 trains per month. More importantly, at ExxonMobil's request, we now expect to complete construction of new storage tanks and commence terminal operations under our 10-year contract during the fourth quarter of this year, ahead of our original schedule of January 2023. We expect this contract to generate approximately 20 million of incremental EBITDA annually, bringing substantial committed throughput volume to the terminal and provide a springboard for increased volumes and growth in volumes. There are also inactive discussions with Exxon about activating an additional connecting pipeline, which will bring incremental crude volume from Jefferson to the expanded Exxon Beaumont refinery. Additionally, we will look to complement this expansion by providing bidirectional service on the Southern Star crude oil pipeline between Jefferson and Motiva, allowing for increased blending capabilities and higher crude oil throughput at the terminal. In short, the much anticipated ramp at Jefferson is now upon us. Moving on to Longridge. Longridge generated $7.5 million in EBITDA in Q2 versus $6.1 in Q1. As we have communicated in the past, we target quarterly EBITDA for our 50% share of Longridge to be in the range of 12 to 15 million per quarter. Our results for 2Q included the impact of gas purchases during the quarter that were required from external suppliers as we transitioned our internal gas production to new wells later than planned. This combination of constrained labor availability and limited supply of drilling equipment meant it took approximately three weeks longer than expected to bring new gas production online, necessitating the purchase the purchase for our power plant from third parties at historically high prices. Fortunately, it was an isolated event and not something we expect to repeat. By the month of June, we were running on our own gas and generated EBITDA for the month within our targets. Going forward, we expect to continue steady EBITDA from the power plant in line with our targets. Development at Long Ridge continues to be robust. In July, we entered into agreements with New Light Technologies for the construction of a new $300 million facility to be built on Long Ridge property, which will produce carbon-negative and biodegradable plastic products from natural gas. Long Ridge will sell power and natural gas to New Light, as well as provide land under a long-term lease. In addition, we expect to be an investor in the project if certain conditions are met. We expect the facility to be operational in 2024. Finally, to close out with Rapano. At Rapano, our key focus is on commencing development of our Phase 2 LPG transloading system. This system is expected to triple our throughput capacity and quadruple our operating margins when it comes online in a couple of years. We have demand from multiple international off-takers, and our goal is to enter into a long-term agreement with one or more parties during the third quarter. We have completed engineering for the new storage tank, and associating piping and systems and negotiated construction contracts. We plan to finance all construction costs with tax exempt debt. In the meantime, in the second quarter, we expanded our existing capabilities by loading fully refrigerated LPG to large gas carrier marine vessels. With this important step, we move closer to our goal of loading VLGCs, or very large gas carriers, across our dock facility. In addition, the newly expanded LPG truck racks continues to see high utilization providing both propane and butane to local heating and blending markets, meeting additional customer needs in the area. Finally, we continue to see increased interest in the renewable energy space, with 250 acres primed for development. We have announced a coordinated effort to develop a unique marine cable manufacturing facility with Rise Light, which will provide a critical American-made infrastructure link to bring renewable electricity from offshore wind generation to local consumers. Also, our Clean Planet joint venture continues to progress through the permitting process for the first plastics recycling plant at Rapano. We're expecting to complete construction of the Clean Planet facility in 2024. With that, I'll turn it back to Joe.